Registration No. 333-14087
File No. 811-07857
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. 1 / X /
POST-EFFECTIVE AMENDMENT NO. __
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
AMENDMENT NO. 1 / X /
OPPENHEIMER REAL ASSET FUND
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(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Englewood, Colorado 80112
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(Address of Principal Executive Offices)
303-671-3200
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(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
Approximate Date of Proposed Offering: As soon as practicable
after the effective date of this Registration Statement and
thereafter from day to day.
The Registrant hereby amends the Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to Section 8(a), shall
determine.
<PAGE>
FORM N-1A
OPPENHEIMER REAL ASSET FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Front Cover Page
2 Expenses; A Brief Overview of the Fund
3 *
4 Front Cover Page; How the Fund is Managed -
Organization and History; Investment Objective and
Policies
5 Expenses; How the Fund is Managed - Organization and
History; Back Cover
5A *
6 Dividends, Capital Gains and Taxes; Investment
Policies and Policies - Portfolio Turnover; How the
Fund is Managed - Organization and History; The
Transfer Agent
7 How to Exchange Shares; Special Investor Services;
Service Plan for Class A shares; Distribution and
Service Plans for Class B and Class C Shares; How to
Buy Shares; How to Sell Shares; Shareholder Account
Rules and Policies
8 How to Sell Shares; How to Exchange Shares; Special
Investor Services
9 *
Part B of
Form N-1A Heading in Statement of Additional Information or
Item No. Prospectus
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Additional Investment
Restrictions
14 How the Fund is Managed -- Trustees and Officers of
the Fund
15 How the Fund is Managed -- Major Shareholders
16 How the Fund is Managed; Additional Information about
the Fund; Distribution and Service Plans; Back Cover
17 How the Fund is Managed
18 Additional Information about the Fund
19 About Your Account -- How to Buy Shares, How to Sell
Shares, How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Additional Information about
the Fund - The Distributor; Distribution and Service
Plans
22 *
23 *
________________
*Not applicable or negative answer.
<PAGE>
OPPENHEIMER
Real Asset Fund
Prospectus dated _________________
Oppenheimer Real Asset Fund is a mutual fund that seeks to provide
total return. The Fund seeks to achieve its objective by investing
primarily in Hybrid Instruments, futures contracts, options,
forward contracts, swaps, investment grade bonds, money market
instruments, and U.S. Government securities. The Fund may also
invest in domestic and foreign equity securities, lower-rated debt
securities ("junk bonds"), and real estate investment trusts
("REITS"). The Fund seeks to outperform traditional equity and
debt securities during adverse economic times.
Investments in Hybrid Instruments, futures contracts and related
options, forward contracts and swaps involve higher volatility and
risk of significant loss of principal than equity or debt
securities. See "Risk Factors-Hybrid Instruments," on page __.
Investors should carefully consider these risks before
investing. The Fund may also use certain derivative instruments in
an effort to enhance returns or reduce the risks of market
fluctuations that affect the value of the investments the Fund
holds, or to seek total return.
An investment in the Fund should not be the sole source of
investment for a shareholder. Rather, an investment in the Fund
should be considered only as part of an overall portfolio strategy
which includes fixed income and equity securities.
This Prospectus explains what you should know before investing
in the Fund. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the
Fund in the Statement of Additional Information. For a free copy,
call OppenheimerFunds Services, the Fund's Transfer Agent, at 1-
800-525-7048, or write to the Transfer Agent at the address on the
back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated
into this Prospectus by reference (which means that it is legally
part of this Prospectus).
[logo] OppenheimerFunds
Shares of the Fund are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the F.D.I.C. or any
other agency, and involve investment risks, including the possible
loss of the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Investment Objective and Philosophy
How the Fund is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Special Sales Charge Arrangements for
Shareholders of the Fund Who Were Shareholders of the
Former Quest for Value Funds
Appendix B: CFTC Exemption For Qualifying Hybrid
Instruments
Appendix C: CFTC Exemption For Swap Transactions
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of
its assets, administration, distribution of its shares and other
services, and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset values per share. All
shareholders therefore pay those expenses indirectly. Shareholders
pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you might
expect to bear indirectly. The numbers below are based on the
Fund's projected expenses for its current fiscal period ending
August 31, 1997.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages __ through __, for an explanation of how and
when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
Shares Shares Shares Shares
<S> <C> <C> <C> <C>--------
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Maximum Sales Charge 5.75% None None None
on Purchases (as a % of
offering price)
-------------------------------------------------------------------------------------
Maximum Deferred Sales None(1) 5% in the first 1% if shares None
Charge (as a % of the year, declining are redeemed
lower of the original to 1% in the within 12
offering price or sixth year and months of
redemption proceeds) eliminated purchase(2)
thereafter(2)
-------------------------------------------------------------------------------------
Sales Charge on None None None None
Reinvested Dividends
------------------------------------------------------------------------------------
Exchange Fee None None None None
</TABLE>
_____________________
(1) If you invest $1 million or more ($500,000 or more for
purchases by OppenheimerFunds prototype 401(k) plans) in Class A
shares, you may have to pay a sales charge of up to 1% if you sell
your shares within 18 calendar months from the end of the calendar
month during which you purchased those shares. See "How to Buy
Shares - Class A Shares," below.
(2) See "How to Buy Shares," below, for more information on the
contingent deferred sales charges.
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
advisor, OppenheimerFunds, Inc. (the "Advisor") and the Advisor
pays the subadvisor, Oppenheimer Real Asset Management, Inc. (which
is referred to in this Prospectus as the "Manager") a fee for
managing the assets of the Fund. The rates of the Advisor's and
Manager's fees are set forth in "How the Fund is Managed," below.
The Fund has other regular expenses for services, such as transfer
agent fees, custodial fees paid to the bank that holds its
portfolio securities, audit fees and legal expenses.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's 12b-1 Distribution Plan Fees
and Management fees, and estimated other expenses if the Fund's
shares had been outstanding for a full fiscal year. These amounts
are shown as a percentage of the average net assets of each class
of the Fund's shares, assuming that the Fund's average annual net
assets for such fiscal year are $__ million. The 12b-1
Distribution Plan Fees for Class A shares are service plan fees.
For Class B and Class C shares the 12b-1 Distribution Plan Fees are
the service plan fees and asset-based sales charges. The service
fee for each class (except Class Y) is 0.25% of average annual net
assets of the class and the asset-based sales charge for Class B
and Class C shares is 0.75%. These plans are described in greater
detail in "How to Buy Shares."
The actual expenses for each class of shares in future years
may be more or less than the numbers in the chart, depending on a
number of factors, including the actual value of the Fund's assets
represented by each class of shares.
Class A Class B Class C Class Y
Shares Shares Shares Shares
- ----------------------------------------------------------------------
Management Fees 1.00% 1.00% 1.00% 1.00%
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12b-1 Distribution Plan Fees 0.25% 1.00% 1.00% None
- -----------------------------------------------------------------------
Other Expenses ____% ____% ____% ____%
- -----------------------------------------------------------------------
Total Fund Operating
Expenses ____% ____% ____% ____%
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Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples
shown below. Assume that you make $1,000 investments in each class
of shares of the Fund, and that the Fund's annual return is 5%, and
that its operating expenses for each class are the ones shown in
the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your
investment would incur the following expenses by the end of 1 and
3, 5 and 10 years:
1 year 3 years
- ------------------------------------------
Class A Shares
- ------------------------------------------
Class B Shares
- ------------------------------------------
Class C Shares
- ------------------------------------------
Class Y Shares
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares
- ------------------------------------------
Class B Shares
- ------------------------------------------
Class C Shares
- ------------------------------------------
Class Y Shares
Because of the asset-based sales charge and the contingent
deferred sales charge on Class B and Class C shares, long-term
Class B and Class C shareholders could pay the economic equivalent
of an amount greater than the maximum front-end sales charge
allowed under applicable regulatory requirements. For Class B
shareholders, the automatic conversion of Class B shares to Class
A shares is designed to minimize the likelihood that this will
occur. Please refer to "How to Buy Shares - Buying Class B Shares"
for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized
below, with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing in the
Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to
sell or exchange shares.
What Is The Fund's Investment Objective? The Fund's
investment objective is to seek total return.
What Does the Fund Invest In? The Fund seeks to outperform
traditional equity and debt securities during adverse economic
conditions. The Fund invests primarily in Hybrid Instruments,
futures contracts, options, forward contracts, swaps, investment
grade bonds, money market instruments, and U.S. Government
securities. The Fund may also invest in domestic and foreign
equity securities, lower-rated debt obligations ("junk bonds"), and
real estate investment trusts ("REITS"). Most of the Hybrid
Instruments the Fund purchases have values based on a commodity, a
futures contract, an index, or another readily measurable economic
variable.
Who Manages the Fund? The Fund's investment advisor (the
"Advisor") is OppenheimerFunds, Inc. The Fund also has a
subadvisor (the "Manager") which is Oppenheimer Real Asset
Management, Inc. The Manager is a wholly owned subsidiary of the
Advisor. The Advisor, along with a subsidiary, manages investment
company portfolios having over $62 billion in assets at December
31, 1996. The Manager is responsible for the day-to-day management
of the Fund's investments. The Advisor and the Manager are paid
advisory fees by the Fund, based on the Fund's net assets. The
Fund has two portfolio managers, Russell Read and Mark Anson, who
are employed by the Manager. They are primarily responsible for
the selection of the Fund's investments. The Fund's Board of
Trustees oversees the Manager and the portfolio managers. Please
refer to "How the Fund is Managed," starting on page 28 for more
information about the Manager and its fees.
How Risky is the Fund? While different types of investments
have risks that differ in type and magnitude, all investments carry
risk to some degree. Changes in overall market movements or
interest rates, or factors affecting a particular industry,
commodity, or issuer, can affect the value of the Funds'
investments and the Fund's net asset values per share. Fixed-
income investments are generally subject to credit risk and the
risk that values will fluctuate with changes in interest rates,
with lower-rated, fixed-income investments being subject to a
greater risk that the issuer will default in its interest or
principal payment obligations. Hybrid Instruments, futures
contracts and related options, forward contracts and swaps may be
quite volatile and suffer a loss of principal. See "Risk Factors -
Hybrid Instruments," below. Hedging instruments involve certain
risks, as discussed under "Options, Futures Contracts and Other
Derivative Instruments."
In the Oppenheimer funds spectrum, the Fund is generally
considered to be a more aggressive fund. The Fund is expected to
have a higher risk/return profile than the other Oppenheimer funds.
This is because the Fund invests in Hybrid Instruments, futures
contracts and swaps, which are subject to greater volatility and
have various additional special risks.
The Fund may invest in instruments that involve leverage. For
instance, the Fund may invest in Hybrid Instruments with a leverage
factor up to 150%. Leverage can increase the return received from
a Hybrid Instrument, but at the same time, increase the risk of
loss from the Hybrid Instrument. See "Some Hybrid Instruments
Involve Leverage."
While the Manager may attempt to reduce some risks by
diversifying investments across financial and commodity markets,
and by carefully researching investments before they are purchased
for the portfolio, and in some cases by using hedging techniques,
the Manager expects the Fund's per share net asset value to be
highly volatile. There is no guarantee of success in achieving the
Fund's objective and your shares may be worth more or less than
their original cost when you redeem them. Please refer to "Risk
Factors" starting on page __ for a more complete discussion of the
Fund's investment risks.
How Can I Buy Shares? You can buy shares through your
dealer or financial institution, or you can purchase shares
directly through the Distributor by completing an Application or by
using an Automatic Investment Plan under AccountLink. Please refer
to "How to Buy Shares" on page __ for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund offers
the individual investor three classes of shares. All classes have
the same investment portfolio but different expenses. Class A
shares are offered with a front-end sales charge, starting at
5.75%, and reduced for larger purchases. Class B and Class C shares
are offered without a front-end sales charge, but may be subject to
a contingent deferred sales charge if redeemed within 6 years or 12
months, respectively, of buying them. There is also an annual
asset-based sales charge on Class B and Class C shares. Please
review "How To Buy Shares" starting on page __ for more details,
including a discussion about which class may be appropriate for
you.
How Can I Sell My Shares? Shares can be redeemed by mail or
by telephone call to the Transfer Agent on any business day, or
through your dealer. Please refer to "How To Sell Shares" on page
__. The Fund also offers exchange privileges to other Oppenheimer
funds, described in "How to Exchange Shares" on page __.
Investment Objective and Philosophy
Investment Objective. The Fund seeks to provide total return.
The Fund's investment objective is fundamental and can be
changed only with the approval of shareholders. There can be no
assurance that the Fund will meet its investment objective. The
Fund is subject to the investment restrictions described in this
Prospectus and in the Statement of Additional Information, some of
which are fundamental policies.
Investment Philosophy. The investment philosophy for the Fund
is to create a portfolio that the Manager believes should
outperform investments in traditional equity and fixed income
securities ("traditional securities") during periods of adverse
economic conditions, when the value of traditional securities tends
to decline. During "bull markets," when the value of traditional
securities tends to increase, the Manager expects the Fund's
investments to underperform an investment in traditional
securities. For this reason an investment in the Fund should not
be the sole source of investment for a shareholder. Rather, an
investment in the Fund should complement an investor's total
portfolio and thereby offer greater potential diversification and
return benefits.
By investing a portion of its assets in Hybrid Instruments,
futures contracts, options, and swaps, which are described in
detail below, the Fund will attempt to outperform traditional
investments during adverse economic conditions.
During the period 1970 through 1996, the correlation between
the quarterly investment returns of commodities, as compared to the
returns of traditional financial assets such as stocks and bonds
has generally been negative. That is, as financial assets increase
in value, the value of commodities tends to decrease in value.
This inverse relationship occurred generally because commodities
have historically tended to increase and decrease in value during
different parts of the business cycle than financial assets.
Nevertheless, at various times, commodities prices may move in
tandem with the prices of financial assets and thus negate any
potential diversification benefits. In fact, during 1995 and 1996
commodities prices have generally not been negatively controlled
with financial assets. If this positive correlation continues, the
diversifying benefits of the Fund in an investor's portfolio may
not come to fruition.
For example, a portfolio consisting of traditional securities
has tended to decline during periods of increasing interest rates
and inflation. During such periods, the value of certain
commodities, such as oil and metals, has tended to increase.
Conversely, during periods of low inflation and moderate economic
growth, financial assets have tended to increase in value more than
commodities.
The success of the Manager's investment strategy depends,
among other things, upon the Manager's analysis of financial market
conditions and its ability to predict which investments will
outperform traditional securities. To the extent that the Manager
is successful, investors in the Fund may achieve investment results
that outperform a portfolio of traditional securities during
adverse economic conditions. To the extent, however, that the
Manager is not successful, investors in the Fund may achieve
investment results that underperform a portfolio of traditional
securities, even during adverse economic conditions. Also, the
Fund should underperform traditional securities during favorable
economic conditions.
While personnel of the Advisor and the Manager have
considerable experience in investing in traditional securities,
they have only limited experience in investing in commodity-linked
Hybrid Instruments, commodity futures and related options, forward
contracts and commodity swaps. The commodities markets and
instruments related to the commodities market may be subject to
additional special risks that do not affect traditional securities.
See "Risks - Skill of the Manager," and "Risks - Commodity Futures
Contracts."
Investment Policies and Strategies. The Fund's investment policies
and strategies are described in the sections that follow.
Can the Fund's Investment Objective and Policies Change?
The Fund has the investment objective, described above, as well as
investment policies it follows to try to achieve its investment
objective. Additionally, the Fund uses certain investment
techniques and strategies in carrying out those investment
policies. The Fund's investment policies and techniques are not
"fundamental" unless this Prospectus or the Statement of Additional
Information says that a particular investment policy or technique
is "fundamental."
Fundamental policies are those that cannot be changed without
the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company
Act to be a particular percentage of outstanding voting shares (and
this term is explained under "Investment Restrictions.") The
Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus or the Statement of
Additional Information.
Non-Diversification. The Fund is classified as a "non-
diversified" investment company under the Investment Company Act of
1940 (the "Investment Company Act"), and the proportion of the
Fund's assets that may be invested in the securities of a single
issuer is not limited by the "diversification" requirements of the
Investment Company Act. An investment in the Fund will therefore
entail greater risk than an investment in a diversified investment
company because a higher percentage of investments among fewer
issuers may result in greater exposure to a smaller number of
issuers, greater fluctuation in the total market value of the
Fund's portfolio, and economic, political or regulatory
developments may have a greater impact on the value of the Fund's
portfolio than would be the case if the portfolio were diversified
among more issuers. The Fund, however, intends to qualify as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"). Generally, to
qualify as a regulated investment company, the Fund intends to
limit its investments so that at the end of each quarter, (1) the
Fund will invest no more than 25% of its total assets in the
securities of a single issuer, and (2) with respect to at least 50%
of its total assets, the Fund will not invest (a) more than 5% of
its total assets in the securities of a single issuer, and (b) more
than 10% of the outstanding voting securities of a single issuer.
How the Fund Pursues Its Investment Objective.
The Fund will invest at least 65% of its total assets in
Hybrid Instruments, futures contracts, options, forward contracts,
swaps, investment grade bonds, money market instruments, and U.S.
Government securities. The Fund may invest up to 35% of its total
assets in domestic and foreign equity securities, lower-rated debt
securities ("junk bonds"), and real estate investment trusts
("REITS").
The Manager might not use all of these instruments or all of
these investment strategies to the full extent permitted unless it
believes doing so will help the Fund achieve its investment
objective.
Hybrid Instruments.
Hybrid Instruments are "derivative" instruments.
A Hybrid Instrument is a derivative instrument whose value is
derived from, or linked to, the value of another source, typically
a commodity, a futures contract, an index or some other readily
measurable economic variable. The Hybrid Instruments in which the
Fund invests may include, but are not limited to, debt instruments
with principal and/or coupon payments linked to the value of
commodities, commodity futures contracts, or the performance of
commodity indexes, such as the Goldman Sachs Commodity Index (the
"GSCI"). Although the Fund will be economically exposed to
commodity prices, the predominant characteristic of each Hybrid
Instrument is expected to be that of a debt obligation. The Fund
may invest in Hybrid Instruments where the principal is protected
completely, partially or not at all.
The Hybrid Instruments in which the Fund expects to invest are
typically structured as follows:
Hybrid Instruments are linked to the commodity markets.
Hybrid Instruments in which the Fund may invest are structured so
that part of their return is derived from, or linked to, an
underlying commodity, commodity index, or another readily
measurable economic variable. Consequently, at maturity of the
note, the Fund may receive back more or less of its invested
principal, or more or less of its stated coupon payment, depending
on the performance of the underlying commodity, index, or economic
variable. For instance, the Fund may invest in Hybrid Instruments
linked to the GSCI which not only increase in value when the GSCI
increases in value, but may also decrease in value if the GSCI
declines in value. See Hybrid Instruments with out principal
protection, below.
Hybrid Instruments without principal protection. The Fund
may also invest in Hybrid Instruments that offer no principal
protection. At maturity, there is a risk that the underlying
commodity price, futures contract, index or other economic variable
may have declined sufficiently in value such that some or all of
the face value of the Hybrid Instrument might not be returned.
Some of the Hybrid Instruments that the Fund may invest in may have
no principal protection and the Hybrid Instrument could lose all of
its value. To limit this exposure, the Fund will not invest more
than 25% of its total assets in Hybrid Instruments where the
potential loss to the Hybrid Instrument exceeds 50% of its face
value.
Some Hybrid Instruments involve economic leverage.
Generally, economic leverage exists when an investor achieves
the right to a return on a capital base that exceeds the return on
the investment that the Fund has personally contributed to the
entity or instrument achieving a return. Borrowing money is
considered a traditional form of leverage, because the borrower can
use the additional money to increase exposure to a particular
investment. Some Hybrid Instruments in which the Fund may invest
involve a degree of leverage. The Manager, however, believes that
the leverage risks involved in Hybrid Instruments are economic in
nature, and do not constitute leverage in the traditional sense
because, among other things, the Fund does not borrow money to
purchase the Hybrid Instruments and the Fund's risk of loss on a
Hybrid Instrument is limited to the amount of the Fund's investment
in the Hybrid Instrument.
A Hybrid Instrument linked to the value of a commodity index
may return income calculated as a multiple of the price movement of
the underlying index. A Hybrid Instrument with a leverage factor
of 1.5 will increase in value by 1.5% for every 1% increase in the
underlying index. Therefore, at maturity, if the underlying index
has increased by 10%, the Hybrid Instrument would pay the full
principal value plus 15% of the principal value. However, if the
Hybrid Instrument is not principal protected and the underlying
index declines by 10%, the Hybrid Instrument would pay only 85% of
its principal.
The Fund has established certain limitations to ensure that it
is not subject to undue leverage risk. See "Limitations on Hybrid
Instruments - Limitations on leverage," below.
Limitations on Hybrid Instruments.
Maturity. The Fund will not invest more than 10% of its total
assets, determined at the time of investment, in Hybrid Instruments
with a maturity greater than 13 months.
Principal protection. The Fund will not invest more than 25%
of its total assets, determined at the time of investment, in
Hybrid Instruments where, under the terms of the Hybrid Instrument,
the risk of loss to the Fund upon maturity exceeds 50% of the
principal value of the Hybrid Instrument.
Qualifying Hybrid Instruments. The Fund intends to invest in
Hybrid Instruments that qualify for the exemption from regulation
by the Commodity Futures Trading Commission. See Appendix B of
this prospectus for a description of Qualifying Hybrid Instruments.
The Fund may invest up to 100% of its total assets in Qualifying
Hybrid Instruments.
Limitations on leverage. The Fund will seek to limit the
amount of economic leverage with respect to any one Hybrid
Instrument in which it invests as well as the leverage of the
Fund's overall portfolio. The Fund will not engage in a
transaction involving a Hybrid Instrument if, at the time of
purchase, (a) that Hybrid Instrument's "leverage ratio" exceeds
300% of the price increase in the underlying commodity, futures
contract, index or other economic variable; or (b) the Fund's
"portfolio leverage ratio" exceeds 150%, measured at the time of
purchase. "Leverage ratio" is defined as the expected increase in
the value of a Hybrid Instrument, assuming a one percent price
increase in the underlying commodity, futures contract, index or
other economic factor. In other words, for a Hybrid Instrument
with a leverage factor of 150%, a 1% gain in the underlying
economic variable would be expected to result in a 1.5% gain in
value for the Hybrid Instrument. "Portfolio leverage ratio" is
defined as the average (mean) leverage ratio of all instruments in
the Fund's portfolio, weighted by the market values of such
instruments or, in the case of futures contracts, their notional
values.
Commodity Futures Contracts. The Fund may buy and sell
commodity futures contracts to the fullest extent permissible by
law. The Fund may purchase and sell commodity futures contracts
for a number of purposes described below. See "Options, Futures
Contracts and Other Derivative Instruments."
Futures Contracts, Options and Other Derivative Instruments.
In order to increase its investment return, to manage its exposure
to changing interest rates, commodity prices, securities prices,
currency exchange rates and other economic variables or, for other
investment purposes, the Fund may engage in several strategies
involving various derivative instruments.
The Fund may buy and sell options, futures and forward
contracts for a number of purposes. It may do so to try to manage
its exposure to the possibility that the prices of its portfolio
securities and instruments may decline, or to establish a position
in the futures or options market as a temporary substitute for
purchasing individual securities or instruments. It may do so in
an attempt to enhance its income or return by purchasing and
selling call and put options on commodity futures, commodity
indices, financial indices or securities. It may also use certain
types of derivative instruments to try to manage its exposure to
changing interest rates.
The Fund expects to engage in futures and options transactions
primarily in five main commodity groups: (1) energy, which includes
crude oil, natural gas, gasoline and heating oil; (2) livestock,
which includes cattle, hogs and pork bellies; (3) agriculture,
which includes wheat, corn, oats, soybeans, soybean meal and oil,
coffee, sugar and cocoa; (4) industrial metals, which includes
aluminum and copper; and (5) precious metals, which includes gold,
platinum and silver. The Fund may purchase and sell commodity
futures contracts, options on future contracts and options and
futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group,
as well as others.
The Fund may also transact in other commodity or financial
futures if it believes that doing so may be advantageous to the
Fund s shareholders, including futures contracts and options
relating to (1) foreign currencies (these are Forward Contracts),
(2) financial indices, such as U.S. or foreign government
securities indices, corporate debt securities indices or equity
securities indices (these are referred to as Financial Futures),
(3) interest rates (these are referred to as Interest Rate
Futures), and (4) commodities (these are referred to as commodity
futures). These types of futures contracts are described in the
Statement of Additional Information.
The Fund may buy and sell options, including index options and
options on foreign securities, and may invest in futures contracts
and related options with respect to commodities, foreign
currencies, fixed income securities, and foreign stock indices.
When the Fund writes a call option, it gives the purchaser the
right, but not the obligation, to buy a particular security at a
set price within a set time. The Fund receives income from the
premium paid by the purchaser. The calls are "covered," which
means that the Fund owns the securities that are subject to the
call. There is no limit on the amount of the Fund's total assets
that may be subject to covered calls.
When the Fund writes a put option, it gives the purchaser the
right, but not the obligation, to require the Fund to buy a
particular security at a set price within a set time. Writing puts
requires the segregation of liquid assets by the Fund to cover the
put with no more than 50% of the Fund's total assets subject to
written puts.
Futures Contracts. When the Fund sells a futures contract
it obligates itself to deliver at a specified date a specified
quantity of a commodity at a specified price. In practice, only a
very small percentage of all futures contracts result in actual
delivery of the underlying contract. Generally, the Fund expects
to satisfy or offset its delivery obligations by taking an equal,
but opposite position in the futures markets in the same commodity.
Forward Currency Contracts. The Fund may invest in Forward
Currency Contracts which are used to buy or sell foreign currency
for future delivery at a fixed price. The Fund may use them to try
to "lock in" the U.S. dollar price of a security denominated in a
foreign currency that the Fund has purchased or sold, or to protect
against possible losses from changes in the relative value of the
U.S. dollar and a foreign currency. The Fund may also use "cross
hedging," where the Fund seeks to hedge against changes in
currencies other than the currency in which a security it holds is
denominated. The use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between
the U.S. dollar and a foreign currency.
Derivative instruments can be volatile instruments and may
generally involve special risks. Derivative instruments are
complicated investments and may require special knowledge and
expertise to effectively manage their risks and returns. See "Risk
Factors - Risks of Derivative Instruments."
Hedging. The Fund may employ futures and forward contracts,
options and other derivative instruments as hedging instruments.
The Fund may hedge to attempt to protect against declines in the
market value of its portfolio or to permit the Fund to retain
unrealized gains in the value of its portfolio investments. For
more information on the Fund's hedging activities, see "Hedging" in
the Statement of Additional Information.
Short Sales "Against-the-Box". The Fund may not sell
securities short except in collateralized transactions referred to
as short sales "against-the-box." No more than 15% of the Fund's
net assets will be held as collateral for such short sales at any
one time.
Swaps.
Swaps are customized agreements. Swaps are customized
agreements between two parties to exchange or swap cash flows or
assets at specified intervals in the future. A swap contract may
be best described as a portfolio of forward contracts, where one
party agrees to exchange an asset (e.g. bushels of wheat) for
another asset (cash) at specified dates in the future. A one
period swap contract operates similar to a forward or futures
contract because there is an agreement to swap wheat for cash at
only one forward date. The Fund may engage in swap transactions
that have more than one period and therefore, more than one
exchange of assets. The Fund may enter into swap transactions
whose terms and obligations extend beyond one year.
Swaps are derivative instruments. The Fund expects to
commit a portion of its net assets to total return swaps on
commodity prices, futures contracts, the GSCI, components of the
GSCI, other commodity indices, or other readily measurable economic
variables. A total return swap gives the Fund the right to receive
the appreciation in value of an underlying asset in return for
paying a fee to the swap counterparty. The fee paid by the Fund
will typically be determined by multiplying the face value of the
swap agreement by an agreed upon interest rate. If the underlying
asset declines in value over the term of the swap, the Fund would
be required to pay to the counterparty the dollar value of this
decline in addition to its fee payments.
Qualifying Swap Transactions. Similar to Qualifying Hybrid
Instruments, the Fund intends to invest only in Qualifying Swap
Transactions. Qualifying Swap Transactions are exempt from
regulation by the Commodity Futures Trading Commission under the
Commodity Exchange Act. Qualifying Swap Transactions are described
in more detail in Appendix C of this Prospectus.
U.S. Government Securities. The Fund's investments in U.S.
Government securities may include, but are not limited to, the
following:
U.S. Government Obligations. U.S. Treasury notes, bills
and bonds are backed by the full faith and credit of the U.S.
government. Some U.S. government agency securities are backed by
the full faith and credit of the U.S. government (for
example,"Ginnie Maes"). Others are supported by the right of the
agency to borrow an amount from the U.S. government limited to a
specific line of credit (for example, "Fannie Maes"). Others are
supported only by the credit of the agency that issued the security
(for example, "Freddie Macs").
Zero Coupon Securities. These securities, which may be
issued by the U.S. government, or its agencies or
instrumentalities, are purchased by the Fund at a substantial
discount from their face value. They are subject to greater
fluctuations in market value as interest rates change than debt
securities that pay interest periodically. For financial and tax
purposes, interest accrues on zero coupon bonds even though cash is
not actually received by the Fund.
Mortgage-Backed Securities and CMOs. The Fund may invest
in securities issued by the U.S. Government or its agencies or
instrumentalities that represent on interest in a pool of mortgage
loans. See "U.S. Government Mortgage-Backed Securities and CMOs,"
below.
Investment Grade Bonds. The Fund may invest in investment
grade debt obligations rated in the four highest investment
categories by Standard & Poor's Corporation, Moody's Investor
Services, Inc., or by another nationally recognized statistical
rating organization ("NRSRO") or, if unrated, considered by the
Manager to be of similar quality. These investments may include:
Corporate Bonds. The Fund may invest in debt securities
issued by domestic corporations.
International Bonds. The Fund may invest in international
bonds, including debt securities denominated in currencies other
than the U.S. dollar. Generally, these securities are issued by
foreign corporations and foreign governments and are traded on
foreign markets. Investment in international debt securities that
are denominated in foreign currencies involve certain additional
risks, which are described in the Statement of Additional
Information.
Asset-Backed Securities. Asset-backed securities represent
interests in pools of assets such as receivables from credit card
loans and automobile loans and other trade receivables. Asset-
backed securities may be supported by a credit enhancement, such as
a letter of credit, a guarantee or a preference right. However,
the extent of the credit enhancement may be different for different
securities and generally applies to only a fraction of the
security's principal amount. Prepayments on the underlying
receivables may reduce the return on asset-backed securities.
Participation Interests. Participation interests are
interests in loans made to U.S. or foreign companies or to foreign
governments. These interests are typically acquired from banks or
brokers that have made the loan or are members of the lending
syndicate. No more than 5% of the Fund's net assets may be
invested in participation interests of the same borrower.
The Manager has set certain creditworthiness standards for
issuers of loan participations, and monitors their
creditworthiness. The value of loan participation interests
depends primarily upon the creditworthiness of the borrower, and
its ability to pay interest and principal. Borrowers may have
difficulty making payments. If a borrower fails to make scheduled
interest or principal payments, the Fund could experience a decline
in the net asset value of its shares. Some borrowers may have
senior securities outstanding rated as low as "C" by Moody's or "D"
by S&P, but may be deemed acceptable credit risks. Participation
interests are subject to the Fund's limitations on investments in
illiquid securities. See "Illiquid and Restricted Securities".
U.S. Government Mortgage-Backed Securities and CMOs. The
Fund may invest in securities that represent an interest in a pool
of residential mortgage loans. These include collateralized
mortgage-backed obligations (referred to as "CMOs") issued by the
U.S. Government, or its agencies or instrumentalities (Ginnie Mae,
Fannie Mae, or Freddie Mac). The issuer's obligation to make
interest and principal payments on a mortgage-backed security is
secured by the underlying portfolio of mortgages or mortgage-backed
securities. Prepayments on the underlying mortgages are an
important element of mortgage backed securities and may result in
a gain or loss to the Fund and may reduce the return on the Fund's
investments.
The Fund may invest in CMOs that are "stripped"; that is, the
security is divided into two parts, one of which receives some or
all of the principal payments and the other of which receives some
or all of the interest. Stripped securities that receive interest
only are subject to increased volatility in price due to interest
rate changes and have the additional risk that if the principal
underlying the CMO is prepaid (which is more likely to happen if
interest rates fall), the Fund will lose the anticipated cash flow
from the interest on the mortgages that were prepaid. Stripped
securities that receive principal payments only are also subject to
increased volatility in price due to interest rate changes and have
the additional risk that the security will be less liquid during
demand or supply imbalances. See "Mortgage-backed Securities" in
the Statement of Additional Information for more details.
Private Label Mortgage-Backed Securities, CMOs and Zero
Coupon Bonds. The Fund may purchase mortgage-backed securities,
CMOs and zero coupon bonds sold by private issuers other than the
U.S. Government, its instrumentalities or its agencies. These
private issuers are not backed or guaranteed by the U.S.
Government, and may pose greater credit risk than the U.S.
Government, or its instrumentalities or agencies.
Money market instruments. The Fund may invest in money
market instruments, including U.S. Government obligations,
certificates of deposit, banker's acceptances, bank deposits, other
financial institution obligations, commercial paper and other
short-term commercial obligations. These include time deposits,
certificates of deposit and bankers acceptances of a domestic or
foreign bank with total assets of at least U.S. $1 billion. These
instruments may also include instruments that have variable
interest rates which, in the opinion of the Manager, are expected
to maintain a value at or close to the face value of the
instrument. The Fund may keep a portion of its assets in cash.
Other Investments.
Under normal market conditions, the Fund may also invest up to
35% of its total assets in the following securities and
instruments:
Equity securities. The Fund may invest in domestic equity
securities and equity securities issued by companies domiciled or
engaged in business principally in countries outside the United
States. International equity securities, which, in addition to
common stock, convertible securities, preferred securities and
warrants, do not include American Depository Receipts and other
similar depository receipts. Investment in international equity
securities involve additional risks. See "Foreign Investment
Risks."
Real estate investment trusts. The Fund may invest in real
estate investment trusts ("REITS"), real estate development and
real estate operating companies, and shares of companies engaged in
other real estate related businesses. REITs are trusts that sell
shares to investors and use the proceeds to invest in real estate
or interests in real estate. A REIT may focus on a particular
project, such an apartment complex, or geographic region, such as
the Northeastern United States, or both. However, the Fund's
investment in REITs will be limited to less than 25% of its total
assets.
Junk bonds. The Fund may invest in high-risk, high yield
securities, or "junk bonds." Junk bonds carry more credit risk and
are rated "BB" or below by S&P or "Ba" or below by Moody's, or have
a similar credit risk rating by another NRSRO or, if unrated,
considered by the Manager to be of comparable quality. High yield
securities are considered more risky than investment grade bonds
because there is greater uncertainty regarding the economic
viability of the issuer. The Fund will not invest more than 10% of
its total assets in high yield securities and unrated securities.
The Fund may invest in securities rated as low as "D" by S&P. See
"Special Risks of Lower-Grade Debt Securities."
Portfolio Turnover. A change in the assets and securities
held by the Fund is known as "portfolio turnover." The Fund will
actively trade short-term instruments whose value is linked to an
underlying commodity or index. Consequently, the Fund may have a
high portfolio turnover rate. High portfolio turnover may affect
the ability of the Fund to qualify as a "regulated investment
company" under the Internal Revenue Code for tax deductions for
dividends and capital gains paid to Fund shareholders. Portfolio
turnover also affects brokerage costs, dealer mark-ups and other
transaction costs.
The Fund will not generally exceed a turnover rate of three
times. Although the Fund may have a high turnover ratio due to the
short term nature of its investments, the Fund does not expect its
brokerage expenses to be excessive. This is because the Fund will
purchase many of its investments directly from dealers rather than
through brokers. Additionally, because of the short term nature of
the Fund s investments, the Fund expects to generate short term
taxable gains which will be included in its gross income.
Board-Approved Instruments. The Fund may invest in other
instruments (including new instruments that may be developed in the
future) that the Fund's Board of Trustees determines are consistent
with the Fund's investment objective and investment policies.
Other Investment Techniques and Strategies. The Fund may also use
the investment techniques and strategies described below. These
techniques and strategies involve certain additional risks. The
Statement of Additional Information contains more information about
these techniques and strategies, including limitations on their use
that may help to reduce some of the risks.
Special Risks - Borrowing. As a fundamental policy the Fund
may borrow money in an amount up to 33.33% of its total assets from
banks. Such borrowing may be used to fund shareholder redemptions
or for other purposes. The Fund will borrow only if it can do so
without putting up assets as security for a loan. Borrowing may
subject the Fund to greater risks and costs than funds that do not
borrow. These risks may include the possible reduction of income
and increased fluctuation in the Fund's net asset value per share,
since the Fund pays interest on its borrowings.
When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or
sell such securities on a "delayed delivery" basis. These terms
refer to securities whose terms and indenture are available and for
which a market exists, but which are not available for immediate
delivery. The Fund does not intend to make such purchases for
speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest
accrues to the buyer from the investment. There may be a risk of
loss if the value of the security changes prior to the settlement
date and there is the risk that the other party may not perform.
The Fund may "roll" these transactions by selling the when-issued
security before settlement date and simultaneously purchasing
another substantially similar when-issued security.
Repurchase Agreements. The Fund may enter into repurchase
agreements. They are primarily used by counterparties for
liquidity. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the seller for delivery at a future
date. Repurchase agreements must be fully collateralized.
However, if the seller fails to pay the resale price on the
delivery date, the Fund may incur costs in disposing of the
collateral and may experience losses if there is any delay in its
ability to do so. If the default on the part of the seller is due
to insolvency and the seller initiates bankruptcy proceedings, the
ability of the Fund to liquidate the collateral may be delayed or
limited.
The Fund may also enter into reverse repurchase agreements
where the Fund sells securities to a buyer and simultaneously
agrees to buy back the securities from the buyer at a future date.
Forward roll transactions. The Fund may enter into "forward
roll" transactions with banks or other buyers that provide for
future delivery to the Fund of the mortgage-backed securities in
which the Fund may invest. The Fund would be required to place
liquid securities in a segregated account with its custodian bank
in an amount equal to its purchase payment obligation under the
roll.
When the Fund engages in forward roll transactions, it relies
on the buyer or seller as the case may be, to consummate the
transaction. Failure of the buyer or seller to do so may result in
the Fund losing the opportunity to obtain a price and yield
considered to be advantageous.
Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Fund
may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days in the ordinary
course of business without taking a materially reduced price. In
addition, the Fund may invest in securities that are subject to
legal or contractual restrictions as to resale, including
securities purchased under Rule 144A and Section 4(2) of the
Securities Act of 1933. Investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the
extent that qualified institutional buyers become for a time,
uninterested in purchasing these securities. The Board of
Directors has established a policy under which the liquidity of
such securities is determined.
Loans of Portfolio Securities. To attempt to generate
income, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund must receive
collateral for a loan. These loans are limited to not more than
one-third of the Fund's net assets and are subject to other
conditions described in the Statement of Additional Information.
The Fund presently does not intend to lend its portfolio
securities, but if it does, the value of securities loaned is not
expected to exceed one-third of the value of its total assets in
the coming year.
RISK FACTORS
Hybrid Instruments.
The Hybrid Instruments in which the Fund invests can involve
substantial risks, including risk of loss of a significant portion
of principal.
Risk of loss of interest. To the extent that payment of
interest is linked to the value of a particular commodity, futures
contract, index or other economic variable, the Fund, as the holder
of a Hybrid Instrument, may not receive all or a portion of
interest on its investment.
Risk of loss of principal. To the extent that the amount of
the principal to be repaid upon maturity is linked to the value of
a particular commodity, futures contract, index or other economic
variable, the Fund, as holder of the Hybrid Instrument, may not
receive all or a portion of the principal. The Fund will invest no
more than 25% of its net assets in Hybrid Instruments where the
risk of loss of principal (as calculated at the time of investment)
of the Hybrid Instrument exceeds 50%. At any particular time, the
risk associated with any particular instrument in the Fund's
portfolio may be significantly higher than 50% risk of loss,
particularly when a Hybrid Instrument has appreciated significantly
since its acquisition by the Fund.
Lack of secondary market. The Hybrid Instruments that the
Fund expects to invest in may be created specifically for
investment by the Fund. Therefore, a liquid secondary market may
not exist for these Hybrid Instruments, which may adversely affect
the ability of the Fund to sell them or to accurately value them.
See "Illiquid and Restricted Securities," above. However, to the
extent the Hybrid Instruments in which the Manager invests are
linked to a readily measurable commodity, futures contract, index,
or economic variable, the valuation of these instruments should be
clearly priced to all financial market participants which may
increase their liquidity.
Skill of the Manager. The success of the Fund in selecting
Hybrid Investments for its portfolio depends on the skill of the
Manager in predicting the movement of interest rates, the value of
particular commodities and other economic variables. There is no
assurance that the Manager will accurately predict these movements.
Additionally, neither OFI nor the Manager have experience
investing in commodity-linked Hybrid Instruments. However, OFI,
the parent company of the Manager, does have considerable
experience investing in currency-linked equity-linked and interest
rate-linked Hybrid Instruments. To the extent there are
similarities among these instruments, the experience of OFI and the
Manager may be useful in selecting Hybrid Instruments for the Fund.
Volatility of Hybrid Instruments. The value of the Hybrid
Instruments in which the Fund invests may fluctuate significantly
because the values of the underlying commodities, indexes or other
economic variables to which they are linked are themselves
extremely volatile.
Counterparty risk. Hybrid Instruments are privately issued
notes with stated maturities. These securities may be issued by
banks, broker-dealers or corporations. Therefore, the Fund must
accept the credit risk of the issuer's performance at the maturity
of the instrument. The Fund will attempt to limit this risk, as
best as possible, by transacting whenever possible with
counterparties who have an investment grade credit rating.
Additionally, the Fund may transact with counterparties who have a
Letter of Credit from a major money center bank or some other form
of credit enhancement.
Diversification risk. As discussed above, the Fund is "non-
diversified," which means that it is not limited in the amount it
may invest in any one security. An investment in the Fund will
therefore entail greater risk than an investment in a diversified
investment company because a higher percentage of investments among
fewer issuers may result in greater exposure to a smaller number of
issuers, greater fluctuation in the total market value of the
Fund's portfolio, and economic, political or regulatory
developments may have a greater impact on the value of the Fund's
portfolio than would be the case if the portfolio were diversified
among more issuers.
Commodity Futures Contracts.
Storage Costs. Similar to the financial futures markets,
there are hedgers and speculators in the commodity futures markets.
However, unlike financial instruments, there are costs of physical
storage associated with purchasing the underlying commodity. For
instance, a large manufacturer of baked goods that wishes to hedge
against a rise in the price of wheat has two choices: (i) it can
purchase the wheat today in the cash market and store the commodity
at a cost until it needs the wheat for its manufacturing process,
or (ii) it can buy commodity futures contracts. The price of the
commodity futures contract will reflect the storage costs of
purchasing the physical commodity. These storage costs include the
time value of money invested in the physical commodity plus the
actual costs of storing the commodity less any benefits from
ownership of the physical commodity that are not obtained by the
holder of a futures contract (this is sometimes referred to as the
"convenience yield"). To the extent that these storage costs
change for an underlying commodity while the Fund is long futures
contracts on that commodity, the value of the futures contract may
change commensurately.
Reinvestment Risk. In the commodity futures markets, if
producers of the underlying commodity wish to hedge the price risk
of selling the commodity, they will sell futures contracts today to
lock in the price of the commodity at delivery tomorrow. In order
to induce speculators to take the corresponding long side of the
same futures contract, the commodity producer must be willing to
sell the futures contract at a price which is below the expected
future spot price. Conversely, if the predominate hedgers in the
futures market are the purchasers of the underlying commodity who
purchase futures contracts to hedge against a rise in prices, then
speculators will only take the short side of the futures contract
if the futures price is greater than the expected future spot price
of the commodity.
The changing nature of the hedgers and speculators in the
commodity markets can determine whether futures prices are above or
below the expected future spot price. This can have significant
implications for the Fund when it is time to reinvest the proceeds
from a maturing futures contract into a new futures contract. If
the nature of hedgers and speculators in futures markets has
shifted such that commodity purchasers are the predominate hedgers
in the market, the Fund might reinvest at higher futures prices or
choose other related commodity investments.
Additional Economic Factors. The values of commodities
which underlie commodity futures contracts are subject to
additional variables which may be less significant to the values of
traditional securities such as stocks and bonds. Variables such as
drought, floods, weather, livestock disease, embargos and tariffs
may have a larger impact on commodity prices and commodity-linked
instruments, including futures contracts, Hybrid Instruments and
commodity swaps, than on traditional securities. These additional
variables may create additional investment risks which subject the
Fund's investments to greater volatility than investments in
traditional securities.
Leverage. There is much greater leverage in futures trading
than in stocks. As a registered investment company, the Fund must
pay in full for all securities it purchases. In other words, the
Fund is not allowed to purchase securities on margin. However, the
Fund is allowed to purchase futures contracts on margin where the
initial margin requirements are typically between 3 and 6 percent
of the face value of the contract. That is, the Fund is only
required to pay up front between 3 to 6 percent of the face value
of the futures contract. Therefore, the Fund has a higher degree
of leverage in its futures contract purchases than in its stock
purchases. As a result there may be differences in the volatility
of rates of return between securities purchases and futures
contract purchases, with the returns from futures contracts being
more volatile.
Swap Transactions. Swap transactions are privately
negotiated off-exchange agreements between the Fund and a
counterparty. There is no central market for swap transactions and
therefore they are less liquid investments than exchange trade
instruments. Furthermore, if the Fund were to sell the swap to a
third party, it would still remain primarily liable for the
obligations under the swap contract. Additionally, the Fund will
bear the credit risk of a counterparty's performance under the swap
agreement. See "Swap Transactions" in the Statement of Additional
Information.
Risks of Derivative Instruments. Some of these strategies,
such as selling futures contracts, buying puts and writing calls,
may hedge, to some degree, against price fluctuations. Other
strategies, such as buying futures contracts, writing puts, buying
calls and entering into swap agreements, tend to increase market
exposure and price fluctuation. In some cases, the Fund may buy a
call option, a futures contract or a Hybrid Instrument for the
purpose of increasing its exposure in a particular market segment,
which may be considered speculative. With respect to futures
contracts or related options that are entered into for purposes
that may be considered speculative, the aggregate initial margin
for futures contracts and premiums for options (or, in the case of
non-qualifying Hybrid Instruments, the portion attributable to the
options premium) will not exceed 5% of the Fund's net assets, after
taking into account realized profits and unrealized losses on such
futures contracts.
The use of derivative instruments requires special skills and
knowledge and investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a
derivative instrument at the wrong time or judges market conditions
incorrectly, the strategies may result in a significant loss to the
Fund and reduce the Fund's return. The Fund could also experience
losses if the prices of its hedging instruments, futures and
options positions were not properly correlated with its other
investments or if it could not close out a position because of an
illiquid market for the future or option or derivative instrument.
There are also special risks in particular strategies. For
example, if a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required
to sell the investment at the call price and will not be able to
realize any profit above the call price if the investment has
increased in value above the call price. In writing a put, there
is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price if the market value is below
the put price. These risks and the strategies the Fund may use are
described in greater detail in the Statement of Additional
Information.
Risks of Debt Securities. In addition to credit risks,
described below, debt securities are subject to changes in their
value due to changes in prevailing interest rates. When prevailing
interest rates rise, the value of already-issued debt securities
generally decline. The magnitude of these fluctuations will often
be greater for longer-term debt securities than shorter-term debt
securities. Changes in the value of debt securities held by the
Fund mean that the Fund's share prices can go up or down when
interest rates change because of the effect of the change on the
value of the Fund's portfolio of debt securities. Credit risk
relates to the ability or the perceived ability of the issuer to
meet interest or principal payments on a security as they become
due. Generally, higher yielding, lower-grade bonds, described
below, are subject to credit risks to a greater extent than lower
yielding, investment-grade bonds.
Special Risks of Lower-Grade Debt Securities. High yield,
lower-grade debt securities, whether rated or unrated, often have
speculative characteristics. Lower-grade debt securities have
special risks that may make them riskier investments than
investment grade securities. They may be subject to greater market
fluctuations and risk of loss of income and principal than lower
yielding, investment-grade debt securities. There may be less of
a market for them and therefore they may be harder to sell at an
acceptable price. There is a relatively greater possibility that
the issuer's earnings may be insufficient to allow it to make the
payments of interest due on the outstanding obligation. The
issuer's low credit worthiness may also increase the potential for
its insolvency.
These risks mean that the Fund may not achieve the expected
return from its investment in lower-grade debt securities, and that
the Fund's net asset value per share may be adversely affected by
declines in value of these securities. The Fund is not obligated
to dispose of securities when issuers are in default or if the
rating of the security is reduced. Convertible securities may
entail additional risks but may be less subject to some of these
risks than other debt securities, to the extent they can be
converted into stock, which may be more liquid and less affected by
these other risk factors.
Equity Investment Risks. The Fund may invest in common
stocks, preferred stock, convertible securities, warrants and other
equity securities of domestic or foreign companies of any size.
Because the Fund may invest a substantial portion of its assets in
stocks, the value of the Fund's portfolio will be affected by
changes in the equity markets. At times, the equity markets can be
volatile and stock prices can change substantially. This market
risk will affect the Fund's net asset values per share, which will
fluctuate as the values of the Fund's portfolio securities change.
Not all stock prices change uniformly or at the same time, not all
equity markets move in the same direction at the same time, and
other factors can affect a particular equity's prices (for example,
poor earnings reports by an issuer, loss of major customers, major
litigation against an issuer, and changes in government regulations
affecting an industry). Not all of these factors can be predicted.
The Fund attempts to limit, to some extent, certain market
risks by diversifying its investments, that is, by not investing
too great a percentage of the Fund's assets in any one company.
Because changes in stock and bond market prices can occur at any
time, and because yields on debt securities available at different
times will vary, there is no assurance that the Fund will achieve
its investment objective, and when you redeem your shares, they may
be worth more or less than what you paid for them.
Foreign Investment Risks. Investments in foreign
securities involve the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned
in foreign nations (including, for example, withholding taxes on
interest and dividends) or other taxes imposed with respect to
investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a
given country and repatriation of investments), default in foreign
government securities, and political or social instability or
diplomatic developments that could adversely affect investments.
In addition, there is often less publicly available information
about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial
reporting standards. The Fund may encounter difficulties in
pursuing legal remedies or in obtaining judgments in foreign
courts.
Brokerage commissions, fees for custodial services and other
costs relating to investments in other countries are generally
greater than in the U.S. Foreign markets have different clearance
and settlement procedures from those in the U.S., and certain
markets have experienced times when settlements did not keep pace
with the volume of securities transactions.
INVESTMENT RESTRICTIONS
The investment objective and certain investment restrictions
of the Fund are matters of fundamental policy for purposes of the
Investment Company Act of 1940 (the "1940 Act") and therefore
cannot be changed without the approval of a "majority" of the
outstanding voting securities of the Fund. This means the lesser
of: (i) 67% of the shares of the Fund present at a shareholders'
meeting if the holders of more than 50% of the shares of the Fund
then outstanding are present in person or by proxy; or (ii) more
than 50% of the outstanding voting securities of the Fund. The
following investment restrictions apply only at the time of
purchase by the Fund.
As a matter of fundamental policy, the Fund will not:
(1) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements
secured thereby) if, as a result, 25% or more of the Fund's
total assets would be invested in the securities of companies
whose principal business activities are in the same industry,
provided that the Fund may invest 25% or more of its total
assets (a) in securities, including Hybrid Instruments issued
by banks and other companies in the financial services
industry, and (b) in securities, Hybrid Instruments and other
instruments, including futures and forward contracts, related
options and swaps, in the energy and natural resources,
agriculture, livestock and metals industries. The individual
components of an index will be considered as separate
industries.
(2) make loans, except that, to the extent appropriate under its
investment program, the Fund may (a) purchase bonds,
debentures, other debt securities and Hybrid Instruments,
including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that
the value of such loaned securities does not exceed one-third
of the Fund's total assets;
(3) issue any senior security (as defined in the 1940 Act), except
that (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program,
including reverse repurchase agreements, delayed delivery and
when-issued securities, which may be considered the issuance
of senior securities, (b) the Fund may engage in transactions
that may result in the issuance of a senior security to the
extent permitted under the 1940 Act and applicable
regulations, interpretations of the 1940 Act or an exemptive
order; (c) the Fund may engage in short sales of securities to
the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of Hybrid Instruments,
futures contracts and related options shall not be considered
to involve the issuance of senior securities; and (e) the Fund
may borrow money as authorized by the 1940 Act;
(4) borrow money, except that (a) the Fund may enter into
commitments to purchase securities and instruments in
accordance with its investment program, including delayed-
delivery and when-issued securities and reverse repurchase
agreements, provided that the total amount of any borrowing
does not exceed 33 1/3% of the Fund's total assets; (b) the
Fund may borrow money in an amount not to exceed 33 1/3% of
the value of its total assets at the time when the loan is
made. Borrowings representing more than 33 1/3% of the Fund's
total assets must be repaid before the Fund may make
additional investments;
(5) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Fund from purchasing or selling
Hybrid Instruments, options and futures contracts with respect
to individual commodities or indices, or from investing in
securities or other instruments backed by physical commodities
or indices);
(6) purchase or sell real estate unless acquired as a result of
direct ownership of securities or other instruments (but this
shall not prevent the Fund from investing in securities or
other instruments backed by real estate or securities of
companies engaged in the real estate business, including
REITs). Investments by a Fund in securities backed by
mortgages on real estate or in securities of companies engaged
in such activities are not hereby precluded.
How the Fund is Managed
Organization and History. The Fund was organized in July, 1996 as
a Massachusetts business trust. The Fund is an open-end, non-
diversified management investment company, with an unlimited number
of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the
year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and officers of the Fund and provides more information about them.
Although the Fund is not required by law to hold annual meetings,
it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into four or more
classes. The Board has done so, and the Fund currently has four
classes of shares, Class A, Class B, Class C and Class Y. All
classes invest in the same investment portfolio. Each class has
its own dividends and distributions and pays certain expenses which
may be different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally.
Shareholders of the Fund vote in the aggregate on certain matters
such as the election of Trustees. Each class votes on matters
which affect that class and does not vote on matters which do not
affect that class. Only shares of a particular class vote as a
class on matters that affect that class alone. Shares are freely
transferrable.
The Manager and Its Affiliates. The Fund is managed by
OppenheimerFunds, Inc. (the "Advisor") and Oppenheimer Real Asset
Management, Inc. (the "Manager"), which is the subadvisor for the
Fund and is responsible for selecting the Fund's investments and
handles its day-to-day business. The Advisor and the Manager are
registered investment advisers with the Securities and Exchange
Commission and the Manager is a registered Commodity Trading
Advisor with the Commodity Futures Trading Commission ("CFTC").
The Manager is a wholly owned subsidiary of the Advisor. The
Advisor and the Manager carry out their duties, subject to the
policies established by the Board of Trustees, under an Investment
Advisory Agreement and Sub-Advisory Agreement which state the
Advisor's and Manager's responsibilities. The Investment Advisory
Agreement and the Sub-Advisory Agreement set forth the fees paid by
the Fund to the Advisor and the Manager and describes the expenses
that the Fund is responsible to pay to conduct its business.
OFI has operated as an investment advisor since 1959. OFI and
its subsidiaries currently manage investment companies, including
other Oppenheimer funds, with assets of more than $62 billion as of
December 31, 1996, and with more than 3 million shareholder
accounts. The Manager is owned by OFI, which in turn is a wholly
owned subsidiary of Oppenheimer Acquisition Corp., a holding
company that is owned in part by senior officers of OFI and
controlled by Massachusetts Mutual Life Insurance Company.
Portfolio Manager. The Portfolio Managers of the Fund are
Russell Read and Mark Anson. They are both Vice Presidents of the
Manager and the Advisor and they are principally responsible for
the day-to-day management of the Fund's portfolio. Mr. Read joined
OFI in October, 1993 as Director of Quantitative Research. Prior
to that, Mr. Read was an investment manager for The Prudential and
Associate Economist for the First National Bank of Chicago. Mr.
Read received his Ph.D. in Political Economy from Stanford
University and his M.B.A. in Finance/International Business and
B.A. in Statistics from the University of Chicago. Mr. Anson
joined OFI in January, 1996 as a Vice President and Assistant
Counsel. Prior to that, Mr. Anson was employed as a Registered
Options Principal on the Equity Derivatives desk at Salomon
Brothers Inc. and as an attorney at Chapman and Cutler. Mr. Anson
earned his Ph.M. and Ph.D. in Finance from the Graduate School of
Business at Columbia University and his J.D. from Northwestern
University School of Law. Mr. Anson has also earned a C.P.A.
certificate.
Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays OFI the following annual fees, which are higher than
the rates paid by most other investment companies, and which
decline on additional assets as the Fund grows: 1.0% of the first
$200 million of average net assets, 0.9% of the next $200 million,
0.85% of the next $200 million, 0.8% of the next $200 million, and
0.75% of net assets in excess of $800 million. Under the Sub-
Advisory Agreement, the Advisor receives from OFI the following
portions of the annual fees: 0.50% of the first $200 million of
average net assets, 0.45% of the next $200 million, 0.425% of the
next $200 million, 0.40% of the next $200 million, and 0.375% of
the net assets in excess of $800 million.
The Fund pays expenses related to its daily operations, such
as custodian fees, Trustees' fees, transfer agency fees, legal fees
and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those
expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other
expenses paid by the Fund is contained in the Statement of
Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. That section discusses how brokers and
dealers are selected for the Fund's portfolio transactions. When
deciding which brokers to use, the Advisor and the Manager are
permitted by the Investment Advisory Agreement and the Sub-Advisory
Agreement to consider whether brokers have sold shares of the Fund
or any other funds for which the Manager or OFI serve as investment
advisor.
The Distributor. The Fund's shares are sold through
dealers, brokers and other financial institutions that have a sales
agreement with OppenheimerFunds Distributor, Inc., a subsidiary of
OFI that acts as the Fund's Distributor. The Distributor also
distributes shares of the other Oppenheimer funds and is sub-
distributor for funds managed by a subsidiary of OFI.
The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of OFI, which acts as the
shareholder servicing agent for the Fund on an "at cost" basis. It
also acts as the shareholder servicing agent for the other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return" and "yield" to
illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class
of shares will usually be different as a result of the different
kinds of expenses each class bears. These returns measure the
performance of a hypothetical account in the Fund over various
periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash or
shares are sold or purchased). The Fund's performance information
may help you see how well your Fund has done over time and to
compare it to other funds or market indices.
It is important to understand that the Fund's total returns
and yield represent past performance and should not be considered
to be predictions of future returns or performance. More detailed
information about how total returns are calculated is contained in
the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time,
depending on market conditions, the composition of the portfolio,
expenses, and which class of shares you purchase.
Total Returns. There are different types of total returns
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally
they include the payment of the current maximum initial sales
charge. When total returns are shown for Class B shares, they
reflect the effect of the contingent deferred sales charge that
applies to the period for which total return is shown. When total
returns are shown for a one-year period (or less) for Class C
shares, they reflect the effect of the contingent deferred sales
charge. Class Y shares are offered to certain institutional
investors without sales charges and the total return for this class
does not reflect any sales charge. Total returns may also be
quoted at net asset value, without considering the effect of the
sales charge, and those returns would be reduced if sales charges
were deducted.
The performance benchmark for the Fund is the Goldman Sachs
Commodity Index ("GSCI"). The GSCI is comprised of the near term
futures prices for 22 commodities within five major commodity
sectors: energy, agriculture, livestock, industrial metals and
precious metals.
Yield. Each class of shares calculates its yield by
dividing the annualized net investment income per share from the
portfolio during a 30-day period by the maximum offering price on
the last day of the period. The yield of each class will differ
because of the different expenses of each class of shares. The
yield data represents a hypothetical investment return on the
portfolio, and does not measure an investment return based on
dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a class derived from net investment
income during a stated period by the maximum offering price on the
last day of the period. Yields and dividend yields for Class A
shares reflect the deduction of the maximum initial sales charge,
but may also be shown based on the Fund's net asset value per
share. Yields for Class B and Class C shares do not reflect the
deduction of the contingent deferred sales charge.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares: Class A, Class B and Class C. Only certain
institutional investors may purchase a fourth class of shares,
Class Y shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. If you buy Class A shares, you may pay an
initial sales charge on investments up to $1 million (up to
$500,000 for purchases by OppenheimerFunds prototype 401(k) plans).
If you purchase Class A shares as part of an investment of at least
$1 million ($500,000 for OppenheimerFunds prototype 401(k) plans)
in shares of one or more Oppenheimer funds, you will not pay an
initial sales charge, but if you sell any of those shares within 18
months of buying them, you may pay a contingent deferred sales
charge. The amount of that sales charge will vary depending on the
amount you invested. Sales charges are described in "Buying Class
A Shares," below.
Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
six years of buying them, you will normally pay a contingent
deferred sales charge that varies depending on how long you own
your shares. Sales charges are described in "Buying Class B
Shares," below.
Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%. Sales charges are described in
"Buying Class C Shares," below.
Class Y Shares. Class Y Shares are sold at net asset value
per share without the imposition of a sales charge at the time of
purchase to separate accounts of insurance companies and other
institutional investors ("Class Y Sponsors") having an agreement
("Class Y Agreements") with the Manager or the Distributor. The
intent of Class Y Agreements is to allow tax qualified
institutional investors to invest indirectly (through separate
accounts of the Class Y Sponsor) in Class Y Shares of the Fund and
to allow institutional investors to invest directly in Class Y
shares of the Fund. Individual investors are not permitted to
invest directly in Class Y Shares. As of the date of this
Prospectus, Massachusetts Mutual Life Insurance Company (an
affiliate of the Manager and the Distributor) acts as Class Y
Sponsor for all outstanding Class Y Shares of the Fund. While
Class Y shares are not subject to a contingent deferred sales
charge, asset-based sales charge or service fee, a Class Y sponsor
may impose charges on separate accounts investing in Class Y
shares.
None of the instructions described elsewhere in this
Prospectus or the Statement of Additional Information for the
purchase, redemption, reinvestment, exchange or transfer of shares
of the Fund, the selection of classes of shares or the reinvestment
of dividends apply to its Class Y shares. Clients of Class Y
Sponsors must request their Sponsor to effect all transactions in
Class Y shares on their behalf.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decision as to which
class of shares is better suited to your needs depends on a number
of factors which you should discuss with your financial advisor.
The Fund's operating costs that apply to a class of shares and the
effect of the different types of sales charges on your investment
will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long
you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider
another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We assumed you are an individual investor, and therefore
ineligible to purchase Class Y shares. We used the sales charge
rates that apply to each class, considered the effect of the annual
asset-based sales charge on Class B and Class C expenses (which,
like all expenses, will affect your investment return). For the
sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary,
based on the Fund's actual investment returns and the operating
expenses borne by each class of shares, and which class of shares
you invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors
to consider in purchasing a particular class of shares assumes that
you will purchase only one class of shares and not a combination of
shares of different classes.
How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. The effect of the sales
charge, over time, using our assumptions will generally depend on
the amount invested. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to
invest. For example, the reduced sales charges available for larger
purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment (which reduces
the amount of your investment dollars used to buy shares for your
account), compared to the effect over time of higher class-based
expenses on Class B or Class C shares for which no initial sales
charge is paid.
Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there
is no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales
charge available for larger purchases of Class A shares. For
example, Class A might be more advantageous than Class C (as well
as Class B) for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000
expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and B). If investing
$500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most
cases Class A shares will be the most advantageous choice, no
matter how long you intend to hold your shares. For that reason,
the Distributor normally will not accept purchase orders of
$500,000 or more for Class B shares or $1 million or more of Class
C shares, from a single investor.
Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or C shares, as discussed above, because of the effect of
the expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A
shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumptions stated above, and
therefore you should analyze your options carefully.
Are There Differences in Account Features That Matter to
You? Because some account features may not be available to Class
B or Class C shareholders, or other features (such as Automatic
Withdrawal Plans) might not be advisable (because of the effect of
the contingent deferred sales charge) in non-retirement accounts
for Class B or Class C shareholders, you should carefully review
how you plan to use your investment account before deciding which
class of shares to buy. For example, share certificates are not
available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be
a factor to consider. Additionally, the dividends payable to Class
B and Class C shareholders will be reduced by the additional
expenses borne solely by those classes, such as the asset-based
sales charges to which Class B and Class C shares are subject, as
described below and in the Statement of Additional Information.
How Does It Affect Payments to My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class of shares than for selling
another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales
charges and asset-based sales charges is the same as the purpose of
the front-end sales charge on sales of Class A shares: that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional
investments at any time with as little as $25. There are reduced
minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans,
403(b)(7) custodial plans and military allotment plans, you can
make initial and subsequent investments of as little as $25.
Subsequent purchases of at least $25 can be made by telephone
through AccountLink.
Under pension and profit-sharing plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of
as little as $250 (if your IRA is established under an Asset
Builder Plan, the $25 minimum applies), and subsequent investments
may be as little as $25.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the OppenheimerFunds AccountLink service.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O.
Box 5270, Denver, Colorado 80217. If you don't list a dealer on
the application, the Distributor will act as your agent in buying
the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is
appropriate for you.
Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
House (ACH) member. You can then transmit funds electronically to
purchase shares, or to have the Transfer Agent send redemption
proceeds or to transmit dividends and distributions to your bank
account.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to
initiate the ACH transfer to buy shares. You can provide those
instructions automatically, under an Asset Builder Plan, described
below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions
used to establish your account. Please refer to "AccountLink"
below for more details.
Asset Builder Plans. You may purchase shares of the Fund
(and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are in the Statement
of Additional Information.
At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. In most cases, to
enable you to receive that day's offering price, the Distributor
must receive your order by the time of day The New York Stock
Exchange closes, which is normally 4:00 P.M., New York time, but
may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each
class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange on a regular
business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which
is normally 5:00 P.M. The Distributor may reject any purchase
order for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix B
to this Prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates
that apply to purchases of shares of the Fund (including purchases
by exchange) by a person who was a shareholder of one of the Quest
for Value Funds and former Connecticut Mutual Funds (as described
in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales
charge. However, in some cases, described below, purchases are not
subject to an initial sales charge, and the offering price will be
the net asset value. In some cases, reduced sales charges may be
available, as described below. Out of the amount you invest, the
Fund receives the net asset value to invest for your account. The
sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and
allocated to your dealer. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
Front-End Sales Front-end Sales
Charge as a Charge as a Commissions as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- -------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
- -------------------------------------------------------------------------
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
- -------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
- -------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
- -------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
- -------------------------------------------------------------------------
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds in the following cases:
Purchases aggregating $1 million or more; or
Purchases by a retirement plan qualified under section
401(a) if the retirment plan has total plan assets of $500,000 or
more.
The Distributor pays dealers of record commissions on these
purchases in an amount equal to the sum of 1.0% of the first $2.5
million, plus 0.50% of the next $2.5 million, plus 0.25% of
purchases over $5 million. That commission will be paid only on
the amount of those purchases in excess of $1 million ($500,000,
for purchases by OppenheimerFunds prototype 401(k) plans) that were
not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") will be deducted from the redemption proceeds. That sales
charge may be equal to 1.0% of the lesser of (1) the aggregate net
asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gains distributions) or (2)
the original offering price (which is the original net asset value)
of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class
A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of
dividends and capital gains, and then will redeem other shares in
the order that you purchased them. The Class A contingent deferred
sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the contingent deferred sales charge will
apply.
Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients. Dealers whose sales of Class A
shares of Oppenheimer funds (other than money market funds) under
OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5
million per year (calculated per quarter), will receive monthly
one-half of the Distributor's retained commissions on those sales,
and if those sales exceed $10 million per year, those dealers will
receive the Distributor's entire retained commission on those
sales.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
Right of Accumulation. To qualify for the lower sales
charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly, or for trust or
custodial accounts on behalf of your children who are minors. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of
Class A shares. You can also include Class A and Class B shares of
Oppenheimer funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate
for current purchases of Class A shares, provided that you still
hold your investment in one of the Oppenheimer funds. The value of
those shares will be based on the greater of the amount you paid
for the shares or their current value (at offering price). The
Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to
current purchases and must be requested when you buy your shares.
Letter of Intent. Under a Letter of Intent, if you purchase
Class A shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the
sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and
Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. This can include
purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales
Charges" in the Statement of Additional Information.
Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
the Manager or its affiliates;
present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the
Fund, the Manager and its affiliates, and retirement plans
established by them for their employees;
registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
employees and registered representatives (and their spouses)
of dealers or brokers described above or financial institutions
that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children);
dealers, brokers or registered investment advisors that have
entered into an agreement with the Distributor (1) providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients; (those clients
may be charged a transaction fee by their dealer, broker or advisor
for the purchase or sale of Fund shares); or (2) that have entered
into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker
or investment advisor provides administrative services;
directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
accounts for which Oppenheimer Capital is the investment
advisor (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts;
any unit investment trust that has entered into an
appropriate agreement with the Distributor;
a TRAC-2000 401(k) plan (sponsored by the former Quest For
Value Advisors) whose Class B or Class C shares of a Former Quest
for Value Fund were exchanged for Class A shares of that Fund due
to the termination of the Class B and Class C TRAC-2000 program on
November 24, 1995; or
qualified retirement plans that had agreed with the former
Quest for Value Advisors to purchase shares of any of the Former
Quest for Value Funds at net asset value, with such shares to be
held through DCXchange, a sub-transfer agency mutual fund
clearinghouse, provided that such arrangements are consummated and
share purchases commence by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party;
shares purchased by the reinvestment of loan repayments by
a participant in a retirement plan for which the Manager or its
affiliates acts as sponsor;
shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor; or
shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent sales charge was paid (this
waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver; or
shares purchased with the proceeds of maturing principal or
units of any Qualified Unit Investment Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
does not apply to purchases of Class A shares at net asset value
without sales charge as described in the two sections above. It
also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans, including
OppenheimerFunds prototype 401(k) plans (these are all referred to
as "Retirement Plans");
to return excess contributions made to Retirement Plans;
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below);
if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase); or
for distributions from OppenheimerFunds prototype 401(k)
plans for any of the following cases or purposes: (1) following
death or disability (as defined in the Internal Revenue Code) of
the participant or beneficiary (the death or disability must occur
after the participant's account was established); (2) hardship
withdrawals, as defined in the plan; (3) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (4) to
meet the minimum distribution requirements of the Internal Revenue
Code; (5) to establish "substantially equal periodic payments" as
described in Section 72(t) of the Internal Revenue Code, or (6)
separation from service.
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer
or its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset
value per share without an initial sales charge. However, if Class
B shares are redeemed within 6 years of their purchase, a
contingent deferred sales charge will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based
on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original purchase price (which is the
original net asset value). The contingent deferred sales charge is
not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The
Class B contingent deferred sales charge is paid to the Distributor
to reimburse its expenses of providing distribution-related
services to the Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 6 years, and (3)
shares held the longest during the 6-year period. The contingent
deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend
on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month in On Redemptions in That Year
which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B
shareholders of the asset-based sales charge that applies to Class
B shares under the Class B Distribution and Service Plan, described
below. The conversion is based on the relative net asset value of
the two classes, and no sales load or other charge is imposed. When
Class B shares convert, any other Class B shares that were acquired
by the reinvestment of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature
is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A, Class B and Class C
Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C
shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based
on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original purchase price (which is the
original net asset value). The contingent deferred sales charge is
not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price
(including increases due to the reinvestment of dividends and
capital gains distributions). The Class C contingent deferred sales
charge is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection
with the sale of Class C shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 12 months, and (3)
shares held the longest during the 12-month period.
Distribution and Service Plan for Class B and Class C
Shares. The Fund has adopted a Distribution and Service Plan for
Class B shares to compensate the Distributor for its costs in
distributing Class B and Class C shares and servicing accounts.
Under the Plan, the Fund pays the Distributor an annual "asset-
based sales charge" of 0.75% per year on Class B shares that are
outstanding for 6 years or less and on Class C shares. The
Distributor also receives a service fee of 0.25% per year under
each Plan. Under each Plan, both fees are computed on the average
of the net asset value of shares in the respective class,
determined as of the close of each regular business day during the
period. The asset-based sales charge and service fees increase
Class B and Class C expenses by up to 1.00% of the net assets per
year of the respective class.
The Distributor uses the service fees to compensate dealers
and others for providing personal services for accounts that hold
Class B or Class C shares. Those services are similar to those
provided under the Class A Service Plan, described above.
The Distributor pays the 0.25% service fees to dealers and
others in advance for the first year after Class B or Class C
shares have been sold by the dealer. After the shares have been
held for a year, the Distributor pays the service fee to dealers on
a quarterly basis.
The asset-based sales charge allows investors to buy Class B
or C shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund
pays the asset-based sales charges to the Distributor for its
services rendered in distributing Class B and Class C shares.
Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions,
service fees and other costs of distributing and selling Class B
and Class C shares.
The Distributor currently pays sales commissions of 3.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sale of Class B shares is therefore 4.00% of the
purchase price. The Distributor retains the Class B asset-based
sales charge. The Distributor currently pays sales commissions of
0.75% of the purchase price of Class C shares to dealers from its
own resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sale of Class C shares is therefore 1.00% of the
purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares
that have been outstanding for a year or more.
The Distributor's actual expenses in selling Class B and C
shares may be more than the payments it receives from contingent
deferred sales charges collected on redeemed shares and from the
Fund under the Distribution and Service Plans for Class B and C
shares. If either Plan is terminated by the Fund, the Board of
Directors may allow the Fund to continue payments of the service
fee asset-based sales charge to the Distributor for distributing
shares before the Plan was terminated.
Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to Class B and Class C shares redeemed in certain
circumstances as described below. The reasons for this policy are
in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
to make distributions to participants or beneficiaries from
Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2,
as long as the payments are no more than 10% of the account value
annually (measured from the date the Transfer Agent receives the
request), or (b) following the death or disability (as defined in
the Internal Revenue Code) of the participant or beneficiary which
occurred after the account was opened);
redemptions from accounts other than Retirement Plans
following the death or disability of the last surviving shareholder
(the death or disability must have occurred after the account was
established, and you must provide evidence of a determination of
disability by the Social Security Administration);
to make returns of excess contributions to Retirement Plans;
to make distributions from IRAs (including SEP-IRAs and
SAR/SEP accounts) before the participant is age 59-1/2, and
distributions from 403(b)(7) custodial plans or pension or profit
sharing plans before the participant is age 59-1/2 but only after
the participant has separated from service, if the distributions
are made in substantially equal periodic payments over the life (or
life expectancy) of the participant or the joint lives (or joint
life and last survivor expectancy) of the participant and the
participant's designated beneficiary (and the distributions must
comply with other requirements for such distributions under the
Internal Revenue Code and may not exceed 10% of the account value
annually, measured from the date the Transfer Agent receives the
request);
shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
for distributions from OppenheimerFunds prototype 401(k)
plans (1) for hardship withdrawals; (2) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (3) to
meet minimum distribution requirements as defined in the Internal
Revenue Code; (4) to make "substantially equal periodic payments"
as described in Section 72(t) of the Internal Revenue Code; or (5)
for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares in the following cases:
shares sold to the Manager or its affiliates;
shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
shares issued in plans of reorganization to which the Fund
is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund
account to your account at your bank or other financial institution
to enable you to send money electronically between those accounts
to perform a number of types of account transactions. These
include purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please call the Transfer Agent for more
information.
AccountLink privileges should be requested on your dealer's
settlement instructions if you buy your shares through your dealer.
After your account is established, you can request AccountLink
privileges by sending signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each
shareholder listed in the registration on your account as well as
to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for your
account, any change of bank account information must be made by
signature-guaranteed instructions to the Transfer Agent signed by
all shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To
purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer funds
account you have already established by calling the special
PhoneLink number. Please refer to "How to Exchange Shares," below,
for details.
Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer funds account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is worth
$5,000 or more, you can establish an Automatic Withdrawal Plan to
receive payments of at least $50 on a monthly, quarterly, semi-
annual or annual basis. The checks may be sent to you or sent
automatically to your bank account on AccountLink. You may even
set up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Statement of Additional
Information for more details.
Automatic Exchange Plans. You can authorize the Transfer
Agent automatically to exchange an amount you establish in advance
for shares of up to five other Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer funds account is
$25. These exchanges are subject to the terms of the Exchange
Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or Class B shares of the Fund, you have up to 6 months to reinvest
all or part of the redemption proceeds in Class A shares of the
Fund or other Oppenheimer funds without paying a sales charge.
This privilege applies only to Class A shares you purchased subject
to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. Please
consult the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for
your retirement plans. If you participate in a plan sponsored by
your employer, the plan trustee or administrator must make the
purchase of shares for your retirement plan account. The
Distributor offers a number of different retirement plans that can
be used by individuals and employers:
Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
403(b)(7) Custodial Plans for employees of eligible tax-
exempt organizations, such as schools, hospitals and charitable
organizations
SEP-IRAs (Simplified Employee Pension Plans) for small
business owners or people with income from self-employment,
including SARSEP-IRAs
Pension and Profit-Sharing Plans for self-employed persons
and small business owners
401(k) Prototype Retirement Plans for businesses
Please call the Distributor for the OppenheimerFunds plan
documents, which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares in writing
or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have
questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death
of the owner or from a retirement plan, please call the Transfer
Agent first, at 1-800-525-7048, for assistance.
Retirement Accounts. To sell shares in an Oppenheimer
funds retirement account in your name, call the Transfer Agent for
a distribution request form. There are special income tax
withholding requirements for distributions from retirement plans
and you must submit a withholding form with your request to avoid
delay. If your retirement plan account is held for you by your
employer, you must arrange for the distribution request to be sent
by the plan administrator or trustee. There are additional details
in the Statement of Additional Information.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record on
your account statement
Shares are being transferred to a Fund account with a
different owner or name
Shares are redeemed by someone other than the owners (such
as an Executor)
Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business, or as a fiduciary,
you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
Your name
The Fund's name
Your Fund account number (from your account statement)
The dollar amount or number of shares to be redeemed
Any special payment instructions
Any share certificates for the shares you are selling
The signatures of all registered owners exactly as the
account is registered, and
Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for requests Send courier or Express Mail
by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue,
Denver, Colorado 80217 Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be
received by the Transfer Agent by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. Shares held in an OppenheimerFunds retirement plan
or under a share certificate may not be redeemed by telephone.
To redeem shares through a service representative, call
1-800-852-8457
To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the
address on the account statement, or, if you have linked your Fund
account to your bank account on AccountLink, you may have the
proceeds wired to that bank account.
Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to
the address on the account statement. This service is not
available within 30 days of changing the address on an account.
Telephone Redemptions Through AccountLink. There are no
dollar limits on telephone redemption proceeds sent to a bank
account designated when you establish AccountLink. Normally the
ACH transfer to your bank is initiated on the business day after
the redemption. You do not receive dividends on the proceeds of
the shares you redeemed while they are waiting to be transferred.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. To find out more information about this
service, please contact your dealer or broker. Brokers or dealers
may charge for that service. Please refer to "Special Arrangements
for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
Shares of the fund selected for exchange must be available
for sale in your state of residence
The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day
You must meet the minimum purchase requirements for the fund
you purchase by exchange
Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class of the Fund may be exchanged only
for shares of the same class in the other Oppenheimer funds. For
example, you can exchange Class A shares of this Fund only for
Class A shares of another fund. At present, Oppenheimer Money
Market Fund, Inc. offers only one class of shares, which are
considered "Class A" shares for this purpose. In some cases, sales
charges may be imposed on exchange transactions. Please refer to
"How to Exchange Shares" in the Statement of Additional Information
for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at 1-800-852-
8457 or by using PhoneLink for automated exchanges, by calling 1-
800-533-3310. Telephone exchanges may be made only between accounts
that are registered with the same name(s) and address. Shares held
under certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to 7 days if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple
exchange requests from a dealer in a "market-timing" strategy might
require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to provide
you notice whenever it is reasonably able to do so, it may impose
these changes at any time.
For tax purposes, exchanges of shares involve a redemption
of the shares of the Fund you own and a purchase of the shares of
the other fund, which may result in a capital gain or loss. For
more information about taxes affecting exchanges, please refer to
"How to Exchange Shares" in the Statement of Additional
Information.
If the Transfer Agent cannot exchange all the shares you
request because of a restriction cited above, only the shares
eligible for exchange will be exchanged.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 P.M. but may be earlier on some days, on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
Market values may be obtained from closing exchange prices,
securities pricing services, or dealer quotes. There are special
procedures for valuing illiquid and restricted securities and
obligations for which market values cannot be readily obtained.
These procedures are described more completely in the Statement of
Additional Information.
The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring
callers to provide tax identification numbers and other account
data or by using PINs, and by confirming such transactions in
writing. If the Transfer Agent does not use reasonable procedures
it may be liable for losses due to unauthorized transactions, but
otherwise neither the Transfer Agent nor the Fund will be liable
for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may
not be able to complete a telephone transaction and should consider
placing your order by mail.
Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio
fluctuates, and the redemption price, which is the net asset value
per share, will normally be different for Class A, Class B, Class
C and Class Y shares. Therefore, the redemption value of your
shares may be more or less than their original cost.
Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within
7 days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payment will be forwarded within 3 business days. The Transfer
Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days
from the date the shares were purchased. That delay may be avoided
if you purchase shares by certified check or arrange to have your
bank provide telephone or written assurance to the Transfer Agent
that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for reasons other
than the fact that the market value of shares has dropped, and in
some cases involuntary redemptions may be made to repay the
Distributor for losses from the cancellation of share purchase
orders.
Under unusual circumstances, shares of the Fund may be
redeemed "in kind," which means that the redemption proceeds will
be paid with securities from the Fund's portfolio. Please refer to
"How to Sell Shares" in the Statement of Additional Information for
more details.
"Backup Withholding" of Federal income tax may be applied at
the rate of 31% from taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales charge when redeeming certain Class A, Class B and Class C
shares.
To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and
semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call
the Transfer Agent at 1-800-525-7048 to ask that copies of those
materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B, Class C and Class Y shares from net investment income on
an annual basis and pays such dividends to shareholders on or about
the last business day of December, but the Board of Trustees can
change that date. It is expected that distributions paid with
respect to Class A and Class Y shares will generally be higher than
for Class B or Class C shares because expenses allocable to Class
B and Class C shares will generally be higher. There is no fixed
dividend rate and there can be no assurance as to the payment of
any dividends because the Fund seeks total return as its primary
objective rather than income.
Capital Gains. The Fund may make distributions annually in
December out of any net short or long-term capital gains, and may
make supplemental distributions of dividends and capital gains
following the end of its fiscal year (which ends August 31st).
Short-term capital gains are treated as dividends for tax purposes.
Long-term capital gains will be separately identified in the tax
information the Fund sends you after the end of the calendar year.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are
reinvested. For other accounts, you have four options:
Reinvest all distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
Reinvest long-term capital gains only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
Receive all distributions in cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
Reinvest your distributions in another Oppenheimer Funds
account. You can reinvest all distributions in another Oppenheimer
funds account you have established.
Taxes. The Fund has obtained an opinion of counsel that the Fund
will qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). As such, the Fund
itself is not subject to the federal income tax on any of its
income, provided that it satisfies certain diversification and
distribution requirements, which the Fund intends to do.
Counsel's opinion, which is not binding on the Internal
Revenue Service (the "IRS"), is based, among other things, on an
analysis of the relevant law as applied to the type of securities
in which the Fund will invest. Should the IRS challenge counsel's
conclusions, on whatever ground, and should its challenge be
upheld, resulting in a disqualification of the Fund as a regulated
investment company, then the Fund will be subject to the federal
income tax on its net income at regular corporate rates (without a
deduction for distributions to shareholders). When distributed,
such income would then be taxable to shareholders as an ordinary
dividend.
Under the rules applicable to a regulated investment company,
distributions by the Fund of its net investment income and the
excess, if any, of its net short-term capital gain over its net
long-term capital loss are taxable to shareholders as ordinary
income. Distributions by the Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to
shareholders as long-term capital gains, regardless of the length
of time you have held your shares. A portion of distributions by
the Fund which are taxable to shareholders as ordinary income may
qualify for the 70% dividends-received deduction for corporate
shareholders.
Distributions to shareholders will be treated in the same
manner for Federal income tax purposes whether they elect to
receive them in cash or reinvest them in additional shares. In
general, shareholders take distributions into account in the year
in which they are made. However, they are required to treat certain
distributions made during January as having been paid by the Fund
and received by them on December 31 of the preceding year. A
statement setting forth the Federal income tax status of all
distributions made (or deemed made) during the year to shareholders
will be sent to you promptly after the end of each year.
[If a shareholder is a non-resident alien or other foreign
shareholder, ordinary income dividends paid to such shareholder
generally will be subject to United States withholding tax at the
rate of 30% (or a lower rate under an applicable treaty). Non-U.S.
shareholders are urged to consult their own tax advisors concerning
the applicability of the United States withholding tax to them.]
Under the back-up withholding rules of the Code, shareholders
may be subject to 31% withholding of Federal income tax on ordinary
income dividends, capital gain dividends and redemption payments
made by a Fund. In order to avoid this back-up withholding,
shareholders must provide the Fund with a correct taxpayer
identification number (which for an individual is usually his/her
Social Security number) and certify that they are corporations or
otherwise exempt from or not subject to back-up withholding. [/R]
"Buying a Dividend". When a fund goes ex-dividend, its
share price is reduced by the amount of the distribution. If you
buy shares on or just before the ex-dividend date, or just before
the Fund declares a capital gains distribution, you will pay the
full price for the shares and then receive a portion of the price
back as a taxable dividend or capital gain.
Taxes on Transactions. Share redemptions, including
redemptions for exchanges, are subject to capital gains tax.
Generally speaking, a capital gain or loss is the difference
between the price you paid for the shares and the price you receive
when you sell them.
Returns of Capital. In certain cases distributions made by
the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain Federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax advisor about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
Appendix A: Special Sales Charge Arrangements for Shareholders of
the Fund Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere
in this Prospectus are modified as described below for those
shareholders of (i) Quest for Value Fund, Inc., Quest for Value
Growth and Income Fund, Quest for Value Opportunity Fund, Quest for
Value Small Capitalization Fund and Quest for Value Global Equity
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became
the investment advisor to those funds, and (ii) Quest for Value
U.S. Government Income Fund, Quest for Value Investment Quality
Income Fund, Quest for Global Income Fund, Quest for Value New York
Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund and Quest
for Value California Tax-Exempt Fund when those funds merged into
various Oppenheimer funds on November 24, 1995. The funds listed
above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i)
acquired by such shareholder pursuant to an exchange of shares of
one of the Oppenheimer funds that was one of the Former Quest for
Value Funds or (ii) received by such shareholder pursuant to the
merger of any of the Former Quest for Value Funds into an
Oppenheimer fund on November 24, 1995.
Class A Sales Charges
Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
Purchases by Groups, Associations and Certain Qualified
Retirement Plans. The following table sets forth the initial sales
charge rates for Class A shares purchased by a "Qualified
Retirement Plan" through a single broker, dealer or financial
institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement
Plan or that Association purchased shares of any of the Former
Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995. For this
purpose only, a "Qualified Retirement Plan" includes any 401(k)
plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a
single employer.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
- ------------------ ----------- ----------- ----------
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations
having 50 or more eligible employees or members, there is no
initial sales charge on purchases of Class A shares, but those
shares are subject to the Class A contingent deferred sales charge
described on pages 30 to 31 of this Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of eligible
employees in a Qualified Retirement Plan or members of an
Association or the sales charge rate that applies under the Rights
of Accumulation described above in the Prospectus. In addition,
purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they
qualified to purchase shares of any of the Former Quest For Value
Funds by virtue of projected contributions or investments of $1
million or more each year. Individuals who qualify under this
arrangement for reduced sales charge rates as members of
Associations, or as eligible employees in Qualified Retirement
Plans also may purchase shares for their individual or custodial
accounts at these reduced sales charge rates, upon request to the
Fund's Distributor.
Special Class A Contingent Deferred Sales Charge Rates. Class
A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer funds, and
which shares were subject to a Class A contingent deferred sales
charge prior to November 24, 1995, will be subject to a contingent
deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they
were purchased, at a rate equal to 1.0% if the redemption occurs
within 12 months of their initial purchase and at a rate of 0.50 of
1.0% if the redemption occurs in the subsequent six months. Class
A shares of any of the Former Quest Fund for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
Waiver of Class A Sales Charges for Certain Shareholders. Class
A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales
charges:
Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
of the Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will
not apply to redemptions of Class A shares of the Fund purchased by
the following investors who were shareholders of any Former Quest
for Value Fund:
Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Participants in Qualified Retirement Plans that purchased
shares of any of the Former Quest For Value Funds pursuant to a
special "strategic alliance" with the distributor of those funds.
The Fund's Distributor will pay a commission to the dealer for
purchases of Fund shares as described above in "Class A Contingent
Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
Waivers for Redemptions of Shares Purchased Prior to March 6,
1995. In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such a former Quest for Value Fund
merged, if those shares were purchased prior to March 6, 1995: in
connection with (i) distributions to participants or beneficiaries
of plans qualified under Section 401(a) of the Internal Revenue
Code or from custodial accounts under Section 403(b)(7) of the
Code, Individual Retirement Accounts, deferred compensation plans
under Section 457 of the Code, and other employee benefit plans,
and returns of excess contributions made to each type of plan,
(ii) withdrawals under an automatic withdrawal plan holding only
either Class B or C shares if the annual withdrawal does not exceed
10% of the initial value of the account, and (iii) liquidation of
a shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum value of such
accounts.
Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the
contingent deferred sales charge will be waived for redemptions of
Class A, B or C shares of the Fund by exchange from an Oppenheimer
fund that was a Former Quest For Value Fund or into which such fund
merged, if those shares were purchased on or after March 6, 1995,
but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under
Section 408(a) of the Internal Revenue Code or retirement plans
under Section 401(a), 401(k), 403(b) and 457 of the Code, if those
distributions are made either (a) to an individual participant as
a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or
beneficiary; (2) returns of excess contributions to such retirement
plans; (3) redemptions other than from retirement plans following
the death or disability of the shareholder(s) (as evidenced by a
determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan
(but only for Class B or C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and
(5) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum account value. A shareholder's account will be credited
with the amount of any contingent deferred sales charge paid on the
redemption of any Class A, B or C shares of the Fund described in
this section if within 90 days after that redemption, the proceeds
are invested in the same Class of shares in this Fund or another
Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to
Quest for Value prototype 401(k) plans that were maintained on the
TRAC-2000 recordkeeping system and that were transferred to an
OppenheimerFunds prototype 401(k) plan shall be eligible for an
additional one-time payment by the Distributor of 1% of the value
of the plan assets transferred, but that payment may not exceed
$5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to
Quest for Value prototype 401(k) plans that were maintained on the
TRAC-2000 recordkeeping system and (i) the shares held by those
plans were exchanged for Class A shares, or (ii) the plan assets
were transferred to an OppenheimerFunds prototype 401(k) plan,
shall be eligible for an additional one-time payment by the
Distributor of 1% of the value of the plan assets transferred, but
that payment may not exceed $5,000.
<PAGE>
APPENDIX B - CFTC EXEMPTION FOR QUALIFYING HYBRID INSTRUMENTS
Hybrid Instrument Exemption.
(a) A hybrid instrument is exempt from all provisions of the
Commodity Exchange Act (the "Act") and any person or class of
persons offering, entering into, rendering advice or rendering
other services with respect to such exempt hybrid instrument is
exempt for such activity from all provisions of the Act (except in
each case Section 2(a)(1)(B)), provided the following terms and
conditions are met:
(1) The instrument is:
(i) An equity or debt security within the meaning
of Section 2(l) of the Securities Act of 1933;
or
(ii) A demand deposit, time deposit or transaction
account within the meaning of 12 CFR
204.2(b)(1), (c)(1) and (e), respectively,
offered by an insured depository institution
as defined in Section 3 of the Federal Deposit
Insurance Act; an insured credit union as
defined in Section 101 of the Federal Credit
Union Act; or a Federal or State branch or
agency of a foreign bank as defined in Section
1 of the International Banking Act;
(2) The sum of the commodity-dependent values of the
commodity-dependent components is less than the commodity-
independent value of the commodity-independent component;
(3) Provided that:
(i) An issuer must receive full payment of the
hybrid instrument's purchase price, and a
purchaser or holder of a hybrid instrument may
not be required to make additional out-of-
pocket payments to the issuer during the life
of the instrument or at maturity; and
(ii) The instrument is not marketed as a futures
contract or a commodity option, or, except to
the extent necessary to describe the
functioning of the instrument or to comply
with applicable disclosure requirements, as
having the characteristics of a futures
contract or a commodity option; and
(iii) The instrument does not provide for
settlement in the form of a delivery
instrument that is specified as such in
the rules of a designated contract
market;
(4) The instrument is initially issued or sold subject
to applicable federal or state securities or banking laws to
persons permitted thereunder to purchase or enter into the hybrid
instrument.
<PAGE>
APPENDIX C - CFTC EXEMPTION FOR SWAP TRANSACTIONS
A swap agreement is exempt from all provisions of the Act and
any person or class of persons offering, entering into, rendering
advice, or rendering other services with respect to such agreement,
is exempt for such activity from all provisions of the Act (except
in each case the provisions of Sections 2(a)(1)(B), 4b, and 4o of
the Act and Section 32.9 of this chapter as adopted under Section
4c(b) of the Act, and the provisions of Sections 6(c) and 9(a)(2)
of the Act to the extent these provisions prohibit manipulation of
the market price of any commodity in interstate commerce or for
future delivery on or subject to the rules of any contract market),
provided the following terms and conditions are met:
(a) the swap agreement is entered into solely between
eligible swap participants at the time such persons enter into the
swap agreement;
(b) the swap agreement is not part of a fungible class of
agreements that are standardized as to their material economic
terms;
(c) the creditworthiness of any party having an actual or
potential obligation under the swap agreement would be a material
consideration in entering into or determining the terms of the swap
agreement, including pricing, cost, or credit enhancement terms of
the swap agreement; and
(d) the swap agreement is not entered into and traded on or
through a multilateral transaction execution facility; provided,
however, that subsections (b) and (d) of Rule 35.2 shall not be
deemed to preclude arrangements or facilities between parties to
swap agreements, that provide for netting of payment obligations
resulting from such swap agreements nor shall these subsections be
deemed to preclude arrangements or facilities among parties to swap
agreements, that provide for netting of payments resulting from
such swap agreements; provided further, that any person may apply
to the Commission for exemption from any of the provisions of the
Act (except 2(a)(1)(B)) for other arrangements or facilities, on
such terms and conditions as the Commission deems appropriate,
including but not limited thereto, the applicability of other
regulatory regimes.<PAGE>
Oppenheimer Real Asset Fund
6803 South Tucson Way
Englewood, Colorado 80112
1-800-525-7048
Investment Advisor
Oppenheimer Real Asset Management, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
Special Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
No dealer, broker, salesperson or any other person has been
authorized to give any information or to make any representations
other than those contained in this Prospectus or the Statement of
Additional Information and, if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, Oppenheimer Real Asset Management, Inc.,
OppenheimerFunds Distributor, Inc. or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such an offer in
such state.
__________________ Printed on Recycled Paper
<PAGE>
Oppenheimer Real Asset Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated ________________
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated _______________.
It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling
the Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . .
Investment Policies and Strategies. . . . . . . . . .
Other Investment Techniques and Strategies. . . . . .
Other Investment Restrictions . . . . . . . . . . . .
How the Fund is Managed. . . . . . . . . . . . . . . . . .
Organization and History. . . . . . . . . . . . . . .
Trustees and Officers of the Fund . . . . . . . . . .
The Manager and Its Affiliates. . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . .
Distribution and Service Plans . . . . . . . . . . . . . .
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . .
How To Exchange Shares . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and Taxes . . . . . . . . . . . .
Additional Information About the Fund. . . . . . . . . . .
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . .
Appendix A: Corporate Industry Classifications . . A-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective
and policies of the Fund are discussed in the Prospectus. Set
forth below is supplemental information about those policies and
the types of securities in which the Fund invests, as well as
strategies the Fund may use to achieve its investment objectives.
Certain capitalized terms used in this Statement of Additional
Information have the same meaning as those terms have in the
Prospectus.
The objective of the Fund is total return. Current income is
not a consideration in the selection of portfolio securities for
the Fund, whether for appreciation, defensive, or liquidity
purposes. The fact that a security has a low yield or no yield
will not be an adverse factor in selecting securities to try to
achieve the Funds' investment objective, unless the Manager
believes that lack of current income might adversely affect
appreciation possibilities.
The Fund intends to invest in a portfolio of debt instruments
and commodity-linked instruments, including hybrid instruments,
options, futures and forward contracts, swaps and other securities
designed to outperform investments in traditional equity and debt
securities when the value of these traditional securities is
declining due to adverse economic conditions. As an example,
during periods of rising inflation, debt securities tend to decline
in value due to the general increase in interest rates.
Conversely, during these same periods of rising inflation, the
prices of certain commodites such as oil and metals tend to
increase.
The reverse may be true during "bull markets," when the value
of traditional securities such as stocks and bonds is increasing.
Under such favorable economic conditions, the Fund's investments
are expected to underperform an investment in traditional
securities. Therefore, the returns on the Fund's investments are
expected to exhibit low or negative correlation with stocks and
bonds. As such, investors should not view the Fund as a stand
alone investment, but rather, as part of a diversified portfolio
including stocks and bonds.
The Fund intends to spread its investments among at least five
commodity markets under normal market conditions: energy,
agriculture, livestock, precious metals, and industrial metals.
The percentage of the Fund's assets invested in particular
commodity markets will vary from time to time based on the
Manager's assessment of the appreciation possibilities of
particular markets as well as rates of inflation, interest rates,
current spot market prices and other noneconomic and political
factors that may affect specific markets. In addition, the Fund
may invest in mortage-backed securities, collateralized mortgages,
obligations, other debt securities, equities, real estate
investment trusts, money market instruments, and government
securities.
In selecting securities for the Fund's portfolio, Oppenheimer
Real Asset Management, Inc. (the "Manager") evaluates the merits of
the securities primarily through the exercise of its own investment
analysis. For instance, for Hybrid Instruments this may include
the evaluation of the underlying commodity, futures contract, index
or other economic variable that is linked to the instrument, the
issuer of the instrument, and whether the principal of the
instrument is protected.
Hybrid Instrument. A primary vehicle for gaining exposure
to the commodities markets is through Hybrid Instruments. These
are either equity or debt securities with one or more commodity-
dependent components that have payment features similar to a
commodity futures contract, a commodity option contract, or a
combination of both. Therefore, these instruments are "commodity-
linked" and are considered Hybrid Instruments because they have
both commodity-like and security-like characteristics. Hybrid
Instruments are derivative instruments because at least part of
their value is derived from the value of an underlying commodity,
futures contract, index or other readily measurable economic
variable.
Qualifying Hybrid Instruments. The Fund may invest in
Hybrid Instruments that qualify under Part 34 of the rules under
the Commodity Futures Trading Commission (the "CFTC") for an
exemption from all provisions of the Commodity Exchange Act (the
"Act"). See Appendix C in the Prospectus, "CFTC Exemption for
Qualifying Hybrid Instruments."
Principal Protection. Hybrid Instruments may be principal
protected, partially protected, or offer no principal protection.
A principal protected Hybrid Instrument means that the issuer will
pay, at a minimum, the par value of the note at maturity.
Therefore, if the commodity value to which the Hybrid Instrument is
linked declines over the life of the note, the Fund will receive at
maturity the face or stated value of the note.
With a principal protected Hybrid Instrument, the Fund will
receive at maturity the greater of the par value of the note or the
increase in value of the underlying commodity or index. This
protection is, in effect, an option whose value is subject to the
volatility and price level of the underlying commodity. This
optionality can be added to a hybrid structure, but only for a cost
higher than that of a partially protected (or no protection) Hybrid
Instrument. The Manager's decision on whether to use principal
protection depends on the cost of the protection. Principal
protection will be a tactical decision of the Manager if it
represents good value.
With a partially protected or no principal protection Hybrid
Instrument, the Fund may receive at maturity an amount less than
the note's par value if the commodity, index or other economic
variable value to which the note is linked declines over the term
of the note. The Manager, at its discretion, may invest in a
partially protected principal structured note or a note without
principal protection. In deciding to purchase a note without
principal protection, the Manager may consider, among other things,
the expected performance of the underlying commodity futures
contract, index or other economic variable over the term of the
note, the cost of the note, and any other economic factors which
the Manager believes is relevant.
Counterparty Risk. A significant risk of Hybrid Instruments
is counterparty risk. Unlike exchange traded futures and options,
which are standard contracts, hybrid instruments are customized
securities, tailor-made by a specific issuer. With a listed
futures or options contract, an investor's counterparty is the
exchange clearinghouse. Exchange clearinghouses are capitalized by
the exchange members and typically have high investment grade
ratings (AAA or AA rated by Standard & Poor's). Therefore, the
risk is small that an exchange clearinghouse might be unable to
meet its obligations at maturity.
However, with a Hybrid Instrument, the Fund will take on the
counterparty credit risk of the issuer. That is, at maturity of
the Hybrid Instrument, there is a risk that the issuer may be
unable to perform its obligations under the structured note.
Issuers of Hybrid Instruments are typically large money center
banks, broker-dealers, other financial institutions and large
corporations. To minimize this risk the Fund will transact, to the
extent possible, with issuers who have an investment grade credit
rating from a nationally recognized statistical rating organization
("NRSRO").
Commodity Futures Contracts. The Fund intends to invest a
portion of its assets in commodity futures contracts.
Comparison to forward contracts. Futures contracts and
forward contracts achieve the same economic effect: both are an
agreement to purchase a specified amount of a specified commodity
at a specified future date for a price agreed upon today. However,
there are significant differences in the operation of the two
contracts. Forward contracts are individually negotiated
transactions and are not exchange traded. Therefore, with a
forward contract, the Fund would make a commitment to carry out the
purchase or sale of the underlying commodity at expiration.
For instance, suppose the Fund buys a forward contract to
purchase a certain amount of gold at a set price per ounce for
delivery in three months time. If, two months later, the Fund
wished to liquidate this position, it would contract for the sale
of the gold at a new price per ounce for delivery in one months
time. At expiration of both forward contracts, the Fund would be
required to buy the gold at the set price under the first forward
contract and sell it at the agreed upon price under the second
forward contract. Even though the Fund has effectively offset its
gold position with the purchase and sale of the two forward
contracts, it must still honor the original commitment at maturity
of the two contracts. By contrast, futures exchanges have central
clearinghouses which keep track of all positions. To offset a long
position in a futures contract, the Fund simply needs sell a
similar contract on the exchange. The exchange clearinghouse will
record both the original futures contract purchase and the
offsetting sale, and there is no further commitment on the part of
the Fund. Only a very small percentage of commodity futures
contracts result in actual delivery of the underlying commodity.
Additionally, any gain or loss on the purchase and sale of the
futures contracts is recognized immediately upon the offset, while
with a forward contract, profit or loss is recognized upon maturity
of the forward contracts.
Price limits. The commodity futures exchanges impose on
each commodity futures contract a maximum permissible price
movement for each trading session. If the maximum permissible
price movement is achieved on any trading day, no further trades
may be executed above (or below, if the price has moved downward)
that limit. To the extent that the Fund wishes to execute a trade
outside the daily permissible price movement, it would be prevented
from doing so by exchange rules, and must wait for the another
trading session to execute its transaction.
Price volatility. Despite the daily price limits on the
futures exchanges, the price volatility of commodity futures
contracts has been historically greater than that for traditional
securities such as stocks and bonds. To the extent that the Fund
invests in commodity futures contracts, the assets of the Fund, and
hence the Net Asset Value of Fund shares, may be subject to greater
volatility.
Mark-to-market of futures positions. The futures
clearinghouse marks every futures contract to market at the end of
each trading day, to ensure that the outstanding futures
obligations are limited by the maximum daily permissible price
movement. This process of marking-to-market is designed to prevent
losses from accumulating in any futures account. Therefore, if the
Fund s futures positions have declined in value, the Fund may be
required to post additional margin to cover this decline.
Alternatively, if the Fund's futures positions have increased in
value, this increase will be credited to the Fund's account.
Characteristics of the commodity futures markets. Commodity
futures contracts are an agreement between two parties for one
party to buy an asset from the other party at a later date at a
price and quantity agreed upon today. Commodity futures contracts
are traded on futures exchanges. These futures exchanges offer a
central marketplace in which to transact futures contracts, a
clearing corporation to process trades, a standardization of
expiration dates and contract sizes, and the availability of a
secondary market. Futures markets also specify the terms and
conditions of delivery as well as the maximum permissible price
movement during a trading session. Additionally, the commodity
futures exchanges have position limit rules which limit the amount
of futures contracts that any one party may hold in a particular
commodity at any point in time. These position limit rules are
designed to prevent any one participant from controlling a
significant portion of the market.
Clearing corporation. In the futures markets, the exchange
clearing corporation takes the other side in all transactions,
either buying or selling directly to the market participants. The
clearinghouse acts as the counterparty to all exchange trade
futures contracts. That is, the Fund s obligation is to the
clearinghouse, and the Fund will look to the clearinghouse to
satisfy the Fund s rights under the futures contract.
Delivery of the underlying commodity. Unlike stocks or
bonds where the buyer acquires ownership in the security, buyers of
futures contracts are not entitled to ownership of the underlying
commodity until and unless they decide to accept delivery at
expiration of the contract. In practice, delivery of the
underlying commodity to satisfy a futures contract rarely occurs
because most futures traders use the liquidity of the central
marketplace to sell their futures contract before expiration.
Forward Currency Contracts. The Fund may invest in Forward
Currency Contracts which are used to buy or sell foreign currency
for future delivery at a fixed price. The Fund uses them to try to
"lock in" the U.S. dollar price of a security denominated in a
foreign currency that the Fund has purchased or sold, or to protect
against possible losses from changes in the relative value of the
U.S. dollar and a foreign currency. The Fund may also use "cross
hedging," where the Fund seeks to hedge against changes in
currencies other than the currency in which a security it holds is
denominated. The use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between
the U.S. dollar and a foreign currency.
Options. The Fund may purchase and sell call and put
options on commodity futures contracts, commodity indices,
financial indices, swaps and securities. A call option gives the
buyer the right, but not the obligation, to purchase an underlying
asset at a specified (strike) price. A put option gives the buyer
the right, but not the obligation, to sell an underlying asset at
a specified price. Options may be exchange traded or traded over
the counter (off the exchange markets) directly with dealers.
Over the counter options. The Fund may trade over the
counter options. Over the counter options are not traded on an
exchange and are traded directly with dealers. To the extent an
over the counter option is a tailored investment for the Fund, it
may be less liquid than an exchange traded option. Further,
similar to hybrid instruments, over the counter options contain
counterparty risk. The Fund will take on the credit risk that the
seller of an over the counter option will perform its obligations
under the option agreement if the Fund exercises the option. To
minimize this risk, the Fund intends to transact, to the extent
practicable, with issuers that have an investment grade credit
rating. The Fund may trade over the counter options on commodity
indices, securities, financial indices, interest rates, currencies
and swaps.
Exchange traded options. The Fund may trade listed options
on commodity futures contracts. Options on commodity futures
contracts are exchange traded on the same exchange where the
futures contract is listed. The Fund may purchase and sell options
on commodity futures listed on U.S. and foreign futures exchanges.
Options purchased on foreign listed futures contracts may be
exposed to the risk of foreign currency fluctuations versus the
U.S. dollar. The Fund may also trade exchange listed options on
securities, commodity indices, financial indices, interest rates
and currencies.
Options on swaps. The Fund may trade options on swap
contracts or "swap options." Call swap options provide the holder
of the option with the right to enter a swap contract with a
specified (strike) swap formula, while put swap options provide the
holder with the right to sell or terminate a swap contract. Swap
options are not exchange traded and the Fund will bear the credit
risk of the option seller. Additionally, should the Fund exercise
a call swap option with the option seller, the credit risk of the
counterparty is extended to include the term of the swap agreement.
Swaps. The Fund may invest in total return swaps to gain
exposure to the commodity markets. In a total return commodity
swap the Fund will receive the price appreciation of a commodity
index, a portion of the index, or a single commodity in exchange
for paying an agreed-upon fee. If the commodity swap is for one
period, the Fund will pay a fixed fee, established at the outset of
the swap. However, if the term of the commodity swap is more than
one period, with interim swap payments, the Fund will pay an
adjustable or floating fee. With a "floating" rate, the fee is
pegged to a base rate such as the London Interbank Offered Rate
("LIBOR"), and is adjusted each period. Therefore, if interest
rates increase over the term of the swap contract, the Fund may be
required to pay a higher fee at each swap reset date.
Counterparty Risk. Swap contracts are private transactions
which are customized to meet the specific investment requirements
of the Fund. However, the Fund will be exposed to the performance
risk of its counterparty. If, at maturity of the swap or any
interim payment date, the counterparty is unable to perform its
obligations under the swap contract, the Fund may not receive the
payments due it under the swap agreement. To minimize this risk
the Fund will transact, to the extent possible, with counterparties
who have an investment grade rating from an NRSRO.
Contractual Liability. Swaps are privately negotiated
transactions between the Fund and a counterparty. All of the
rights and obligations of the Fund must be detailed in the swap
contract which binds the Fund and its counterparty. Because a swap
transaction is a privately negotiated contract, the Fund remains
liable for all obligations under the contract until the swap
contract matures or is purchased by the swap counterparty.
Therefore, even if the Fund were to sell the swap contract to a
third party, the Fund would remain primarily liable for the
obligations under the swap transaction. The only way for the Fund
to eliminate its primary obligations under the swap agreement is to
sell the swap contract back to the original counterparty.
Additionally, the Fund must identify liquid assets to its custodian
to the extent of the Fund's obligations to pay the counterparty
under the swap agreement.
Price Risk. Total return commodity swaps expose the Fund
to the price risk of the underlying commodity, index or economic
variable. If the price of the underlying commodity or index
increases in value during the term of the swap, the Fund will
receive the price appreciation. However, if the price of the
commodity or index declines in value during the term of the swap,
the Fund will be required to pay to its counterparty the amount of
the price depreciation. The amount of the price depreciation paid
by the Fund to its counterparty would be in addition to the
financing fee paid by the Fund to the same counterparty.
Lack of Liquidity. Although the swap market is well-
developed for primary participants, there is only a limited
secondary market. Swaps are not traded or listed on an exchange
and over the counter trading of existing swap contracts is limited.
Therefore, if the Fund wishes to sell its swap contract to a third
party, it may not be able to do so at a favorable price.
Regulatory Risk. Qualifying swap transactions are exempt
from regulation by the CFTC. Additionally, swap contracts have
never been determined to be securities by the Securities and
Exchange Commission ("SEC"). Consequently, swap contracts are not
regulated by either the CFTC or the SEC, and swap participants may
not be afforded the protection of the Commodity Exchange Act or the
Securities Laws.
To reduce this risk, the Manager will only transact with
counterparties who use standard International Swap and Dealers
Association, Inc. ("ISDA") contract documentation. ISDA
establishes industry standards for the documentation of swap
agreements. Virtually all swap participants use ISDA documentation
because it has an established set of definitions, contract terms,
and counterparty obligations.
ISDA documentation also establishes a master netting agreement
which provides that all swaps transacted between the Fund and a
counterparty under the master agreement shall be regarded as parts
of an integral agreement. If, on any date, amounts are payable in
the same currency in respect of one or more swap transactions, the
net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty may
terminate the remaining swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party,
the measure of that party's damages is calculated by reference to
the average cost of a replacement swap with respect to each swap
(i.e., the mark-to-market value at the time of the termination of
each swap). The gains and losses on all swaps are then netted, and
the result is the counterparty's gain or loss on termination. The
termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
Debt Securities. The Fund may invest in the following
types of debt and fixed income securities.
U.S. Treasury Obligations. These include Treasury Bills
(which have maturities of one year or less when issued), Treasury
Notes (which have maturities of one to ten years when issued) and
Treasury Bonds (which have maturities generally greater than ten
years when issued). U.S. Treasury obligations are backed by the
full faith and credit of the United States.
U.S. Government and Agency Obligations. U.S. government
securities are debt obligations issued by or guaranteed by the
United States government or any of its agencies or
instrumentalities. Some of these obligations, including U.S.
Treasury notes and bonds, and mortgage-backed securities (referred
to as "Ginnie Maes") guaranteed by the Government National Mortgage
Association, are supported by the full faith and credit of the
United States, which means that the government pledges to use its
taxing power to repay the debt. Other U.S. government securities
issued or guaranteed by Federal agencies or government-sponsored
enterprises are not supported by the full faith and credit of the
United States. They may include obligations supported by the
ability of the issuer to borrow from the U.S. Treasury. However,
the Treasury is not under a legal obligation to make a loan.
Examples of these are obligations of Federal Home Loan Mortgage
Corporation (these securities are often called "Freddie Macs").
Other obligations are supported by the credit of the
instrumentality, such as Federal National Mortgage Association
bonds (these securities are often called "Fannie Maes").
GNMA Certificates. Certificates of Government National
Mortgage Association ("GNMA") are mortgage-backed securities of
GNMA that evidence an undivided interest in a pool or pools of
mortgages ("GNMA Certificates"). The GNMA Certificates that the
Fund may purchase are of the "modified pass-through" type, which
entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to
the "issuer" and GNMA, regardless of whether the mortgagor actually
makes the payments.
The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a
pool of mortgages insured by the Federal Housing Administration
("FHA") or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the U.S.
Government. GNMA is also empowered to borrow without limitation
from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The average life of a GNMA Certificate is likely to be
substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors
and mortgage foreclosures will usually result in the return of the
greater part of principal investment long before the maturity of
the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee, except to the
extent that the Fund has purchased the certificates at a premium in
the secondary market.
FNMA Securities. The Federal National Mortgage Association
("FNMA") was established to create a secondary market in mortgages
insured by the FHA. FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates resemble
GNMA Certificates in that each FNMA Certificate represents a pro
rata share of all interest and principal payments made and owed on
the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates. The FNMA guarantee is not
backed by the full faith and credit of the U.S. Government.
FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created to promote development of a nationwide
secondary market for conventional residential mortgages. FHLMC
issues two types of mortgage pass-through certificates ("FHLMC
Certificates"): mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying
pool. FHLMC guarantees timely monthly payment of interest on PCs
and the ultimate payment of principal. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest semi-annually
and return principal once a year in guaranteed minimum payments.
The expected average life of these securities is approximately ten
years. The FHLMC guarantee is not backed by the full faith and
credit of the U.S. Government.
Mortgage-Backed Securities and CMO's. These securities
represent participation interests in pools of residential mortgage
loans. Mortgage-backed securities include collateralized mortgage-
backed obligations (referred to as "CMOs") issued by the U.S.
government, its agencies or instrumentalities, or by private
issuers. Mortgage-backed securities and CMOs securities differ
from conventional debt securities which generally provide for
periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or
specified call dates.
Mortgage-Backed Securities. The yield on mortgage-backed
securities is based on the average expected life of the underlying
pool of mortgage loans. The actual life of any particular pool
will be shortened by any unscheduled or early payments of principal
and interest. Principal prepayments generally result from the sale
of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by
a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average
life of a particular pool. Yield on such pools is usually computed
by using the historical record of prepayments for that pool, or, in
the case of newly-issued mortgages, the prepayment history of
similar pools. The actual prepayment experience of a pool of
mortgage loans may cause the yield realized by the Fund to differ
from the yield calculated on the basis of the expected average life
of the pool.
Prepayments tend to increase during periods of falling
interest rates, while during periods of rising interest rates
prepayments will most likely decline. When prevailing interest
rates rise, the value of a pass-through security may decrease, as
do the values of other debt securities, but, when prevailing
interest rates decline, the value of a pass-through security is not
likely to rise to the extent that the value of other debt
securities rise, because of the prepayment feature of pass-through
securities. The Fund's reinvestment of scheduled principal
payments and unscheduled prepayments it receives may occur at times
when available investments offer higher or lower rates than the
original investment, thus affecting the yield of the Fund. Monthly
interest payments received by the Fund have a compounding effect
which may increase the yield to the Fund more than debt obligations
that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than Treasury
bonds of similar maturity at maintaining yields during periods of
declining interest rates. The Fund may purchase mortgage-backed
securities at par or at a premium or at a discount. Accelerated
prepayments adversely affect yields for pass-through securities
purchased at a premium (i.e., at a price in excess of their
principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at
the time the obligation is repaid. The opposite is true for pass-
through securities purchased at a discount.
The Fund may invest in "stripped" mortgage-backed securities,
in which the principal and interest portions of the security are
separated and sold. Stripped mortgage-backed securities usually
have at least two classes each of which receives different
proportions of interest and principal distributions on the
underlying pool of mortgage assets. One common variety of stripped
mortgage-backed security has one class that receives some of the
interest and most of the principal, while the other class receives
most of the interest and remainder of the principal. In some
cases, one class will receive all of the interest (the "interest-
only" or "I/O" class), while the other class will receive all of
the principal (the "principal-only" or "P/O" class).
The yield to maturity on the class that receives only interest
is extremely sensitive to the rate of payment of the principal on
the underlying mortgages. Principal prepayments increase that
sensitivity. Stripped securities that pay "interest only" are
therefore subject to greater price volatility when interest rates
change, and they have the additional risk that if the underlying
mortgages are prepaid, the Fund will lose the anticipated cash flow
from the interest on the prepaid mortgages. That risk is increased
when general interest rates fall, and in times of rapidly falling
interest rates, the Fund might receive back less than its
investment.
The value of "principal only" securities generally increases
as interest rates decline and prepayment rates rise. The price of
these securities is typically more volatile than that of coupon-
bearing bonds of the same maturity.
Mortgage-Backed Security Rolls. The Fund may enter into
"forward roll" transactions with respect to mortgage-backed
securities issued by GNMA, FNMA or FHLMC. In a forward roll
transaction, which is considered to be a borrowing by the Fund, the
Fund will sell a mortgage security to a bank or other permitted
entity and simultaneously agree to repurchase a similar security
from the institution at a later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment histories
than those sold. Risks of mortgage-backed security rolls include:
(i) the risk of prepayment prior to maturity, (ii) the possibility
that the proceeds of the sale may have to be invested in money
market instruments (typically repurchase agreements) maturing not
later than the expiration of the roll, and (iii) the possibility
that the market value of the securities sold by the Fund may
decline below the price at which the Fund is obligated to purchase
the securities. Upon entering into a mortgage-backed security
roll, the Fund will be required to place liquid securities in a
segregated account with its Custodian in an amount equal to its
obligation under the roll.
CMOs. CMOs are fully-collateralized bonds that are the general
obligations of the issuer thereof. Such bonds generally are
secured by an assignment to a trustee (under the indenture pursuant
to which the bonds are issued) of collateral consisting of a pool
of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of
principal and interest on the underlying mortgages are not passed
through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid
and principal repaid on the underlying mortgages do not necessarily
constitute income and return of capital, respectively, to such
holders), but such payments are dedicated to payment of interest on
and repayment of principal of the CMOs. See "GNMA Certificates,"
"FNMA Securities," and "FHLMC Securities," above. CMOs often are
issued in two or more classes with different characteristics such
as varying maturities and stated rates of interest. Because
interest and principal payments on the underlying mortgages are not
passed through to holders of CMOs, CMOs of varying maturities may
be secured by the same pool of mortgages, the payments on which are
used to pay interest on each class and to retire successive
maturities (known as "tranches") in sequence. Unlike other
mortgage-backed securities (discussed above), CMOs are designed to
be retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature
generally will be paid down. Therefore, although in most cases the
issuer of CMOs will not supply additional collateral in the event
of such prepayment, there will be sufficient collateral to secure
CMOs that remain outstanding. The value of certain classes or
"tranches" may be more volatile than the value of the pool as a
whole, and losses may be more severe than on other classes.
Mortgage-backed securities and CMOs may be less effective than
debt obligations of similar maturity at maintaining yields during
periods of declining interest rates. As new types of mortgage-
related securities are developed and offered to investors, the
Manager will, subject to the direction of the Board of Trustees and
consistent with the Fund's investment objectives and policies,
consider making investments in such new types of mortgage-related
securities.
Private Label Mortgages. The Fund may also invest in
private label mortgages which are real asset-linked mortgages
issued by entities other than United States government agencies.
Private label mortgages are offered in tranches with debt layers
ranging in credit quality from AAA to, potentially, B. These
mortgages typically offer superior yields over U.S. Treasury
securities.
Commercial Paper. The Fund may invest in commercial paper
investments including the following:
Variable Amount Master Demand Notes. Master demand notes are
corporate obligations which permit the investment of fluctuating
amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. They
permit daily changes in the amounts borrowed. The Fund has the
right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the
amount, and the borrower may prepay up to the full amount of the
note without penalty. These notes may or may not be backed by bank
letters of credit. Because these notes are direct lending
arrangements between the lender and borrower, it is not generally
contemplated that they will be traded. There is no secondary
market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at principal amount, plus
accrued interest, at any time. Accordingly, the Fund's right to
redeem such notes is dependent upon the ability of the borrower to
pay principal and interest on demand. The Fund has no limitations
on the type of issuer from whom these notes will be purchased;
however, in connection with such purchases and on an ongoing basis,
the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal
and interest on demand, including a situation in which all holders
of such notes made demand simultaneously. Investments in master
demand notes are subject to the limitation on investments by the
Fund in illiquid securities, described in the Prospectus.
Floating Rate/Variable Rate Notes. Some of the notes the Fund
may purchase may have variable or floating interest rates.
Variable rates are adjustable at stated periodic intervals;
floating rates are automatically adjusted according to a specified
market rate for such investments, such as the percentage of the
prime rate of a bank, or the 91-day U.S. Treasury Bill rate. Such
obligations may be secured by bank letters of credit or other
credit support arrangements.
Asset-Backed Securities. Asset-backed securities are
typically based on account receivables or consumer loans. The
value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the
creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement
has been exhausted. The risks of investing in asset-backed
securities are ultimately dependent upon payment of consumer loans
by the individual borrowers. As a purchaser of an asset-backed
security, the Fund would generally have no recourse to the entity
that originated the loans in the event of default by a borrower.
The underlying loans are subject to prepayments, which may shorten
the weighted average life of asset-backed securities and may lower
their return, in the same manner as described in the Prospectus and
in "Mortgage-Backed Securities and CMOs", above, for prepayments of
a pool of mortgage loans underlying mortgage-backed securities.
Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers such
as domestic or foreign corporations. Zero coupon U.S. Treasury
securities include: (1) U.S. Treasury bills without interest
coupons, (2) U.S. Treasury notes and bonds that have been stripped
of their unmatured interest coupons and (3) receipts or
certificates representing interests in such stripped debt
obligations or coupons. These securities usually trade at a deep
discount from their face or par value and will be subject to
greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities that
make current payments of interest. However, the lack of periodic
interest payments means that the interest rate is "locked in" and
the investor avoids the risk of having to reinvest periodic
interest payments in securities having lower rates. An additional
risk of private-issuer zero coupon securities is the credit risk
that the issuer will be unable to make payment at maturity of the
obligation.
Because the Fund accrues taxable income from zero coupon
securities without receiving cash, the Fund may be required to sell
portfolio securities in order to pay dividends or redemption
proceeds for its shares, which require the payment of cash. This
will depend on several factors: the proportion of shareholders who
elect to receive dividends in cash rather than reinvesting
dividends in additional shares of the Fund, and the amount of cash
income the Fund receives from other investments and the sale of
shares. In either case, cash distributed or held by the Fund that
is not reinvested by investors in additional Fund shares will
hinder the Fund from seeking current income.
Bank Obligations and Instruments Secured Thereby. The bank
obligations the Fund may invest in include time deposits,
certificates of deposit, and bankers' acceptances if they are: (i)
obligations of a domestic bank with total assets of at least $1
billion or (ii) obligations of a foreign bank with total assets of
at least U.S. $1 billion. The Fund may also invest in instruments
secured by such obligations (e.g., debt which is guaranteed by the
bank). For purposes of this section, the term "bank" includes
commercial banks, savings banks, and savings and loan associations
which may or may not be members of the Federal Deposit Insurance
Corporation.
Time deposits are non-negotiable deposits in a bank for a
specified period of time at a stated interest rate, whether or not
subject to withdrawal penalties. However, time deposits that are
subject to withdrawal penalties, other than those maturing in seven
days or less, are subject to the limitation on investments by the
Fund in illiquid investments, set forth in the Prospectus under
"Illiquid and Restricted Securities."
Banker's acceptances are marketable short-term credit
instruments used to finance the import, export, transfer or storage
of goods. They are deemed "accepted" when a bank guarantees their
payment at maturity.
Risks of Debt Securities. With the exception of U.S.
Government securities, the debt securities that the Fund may invest
in will have one or more types of investment risk: credit risk,
interest rate risk, foreign exchange rate risk or political risk.
Credit Risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they
become due. Generally, higher yielding bonds are subject to credit
risk to a greater extent than higher quality bonds.
Interest Rate Risk. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting solely
from the inverse relationship between the market value of
outstanding fixed-income securities and changes in interest rates.
An increase in interest rates will generally reduce the market
value of fixed-income investments, and a decline in interest rates
will tend to increase their value. In addition, debt securities
with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities
subsequent to their acquisition will not affect the interest
payable on those securities, and thus the cash income from such
securities, but will be reflected in the valuations of those
securities used to compute the Fund's net
asset values.
Foreign Exchange Rate Risk. Foreign exchange rate risk is
the risk that a foreign currency will depreciate relative to the
U.S. dollar. When the Fund invests in a debt security which is
denominated in a foreign currency, the value of the investment will
decline if the foreign currency devalues relative to the U.S.
dollar. Therefore, a strong U.S. dollar may, in fact, be
detrimental to the Fund's investment in foreign securities.
Political Risk. Political risk relates to the willingness
of a foreign government or corporation to pay its interest and
principal obligations as they become due. For most industrialized
nations such as the United States, Great Britain, France, Italy,
Germany, Canada or Japan, the political risk is small. However,
political risk may be larger for emerging market countries which
have a nascent economy or government.
Equity Securities. The Fund may purchase the outstanding
securities of a corporation whose operations and revenues are
linked to the commodity markets. This may include, as an example,
purchasing the equity securities of an issuer whose primary
operation is gold mining or oil production. With respect to such
securities, the Manager may consider, among other things, an
evaluation of the issuer's operations, the prospects for the
commodity industry of which the issuer is part, the issuer's
financial condition, the issuer's pending product or technology
developments and developments by its competitors, the general
market and economic conditions in the issuer's business, and any
legislative proposals or new laws that might affect the issuer.
Additional information about some of the types of equity securities
the Fund may invest in is provided below.
Convertible Securities. While convertible securities are a
form of debt security in many cases, their conversion feature
(allowing conversion into equity securities) causes them to be
regarded more as "equity equivalents." As a result, any rating
assigned to the security has less impact on the Manager's
investment decision with respect to convertible securities than in
the case of non-convertible debt securities. To determine whether
convertible securities should be regarded as "equity equivalents,"
the Manager examines the following factors: (1) whether, at the
option of the investor, the convertible security can be exchanged
for a fixed number of shares of common stock of the issuer, (2)
whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of converting the convertible securities),
and (3) the extent to which the convertible security may be a
defensive "equity substitute," providing the ability to participate
in any appreciation in the price of the issuer's common stock.
Warrants and Rights. Warrants are options to purchase
equity securities at set prices valid for a specified period of
time. The prices of warrants do not necessarily move in a manner
parallel to the prices of the underlying securities. The price the
Fund pays for a warrant will be lost unless the warrant is
exercised prior to its expiration. Rights are similar to warrants,
but normally have a short duration and are distributed directly by
the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the
assets of the issuer.
DECS and PERCS. DECS stand for Dividend Enhanced
Convertible Stock or Debt Exchangeable into Common Stock. These
are a form of an equity security with an embedded short call option
on the underlying stock at one strike price and an embedded long
call option on the underlying stock at a higher strike price. In
effect, the investor holds a long equity position with a short call
spread. The sale of the call spread allows the investor to receive
higher current income while sacrificing some of the capital
appreciation of the underlying security.
PERCS stand for Preference Equity Redemption Cumulative Stock.
A PERCS is equivalent to a long position in the underlying equity
and a short position in a call option whose strike price is set
above the current equity price. In essence, the investor caps or
limits his equity appreciation beyond the strike price in return
for higher current income.
Foreign Securities. As noted in the Prospectus, the Fund
may invest in securities (which may be denominated in U.S. dollars
or non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (described below) and
foreign governments or their agencies or instrumentalities, and in
securities issued by U.S. corporations denominated in non-U.S.
currencies. The types of foreign debt obligations and other
securities in which the Fund may invest are the same types of debt
and equity securities identified above. Foreign securities are
subject, however, to additional risks not associated with domestic
securities, as discussed below. These additional risks may be more
pronounced as to investments in securities issued by emerging
market countries or by companies located in emerging market
countries.
Investing in foreign securities involves considerations and
possible risks not typically associated with investing in
securities in the U.S. The values of foreign securities will be
affected by changes in currency rates or exchange control
regulations or currency blockage, application of foreign tax laws,
including withholding taxes, changes in governmental administration
or economic or monetary policy (in the U.S. or abroad) or changed
circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the
U.S., and foreign securities markets may be less liquid, more
volatile and less subject to governmental regulation than in the
U.S. Investments in foreign countries could be affected by other
factors not generally thought to be present in the U.S., including
expropriation or nationalization, confiscatory taxation and
potential difficulties in enforcing contractual obligations, and
could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in
foreign currencies, a change in the value of any such currency
against the U.S. dollar will result in a change in the U.S. dollar
value of the Fund's assets and its income available for
distribution. In addition, although a portion of the Fund's
investment income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its
income in U.S. dollars, and absorb the cost of currency
fluctuations. The Fund may engage in foreign currency exchange
transactions for hedging purposes to protect against changes in
future exchange rates. See "Other Investment Techniques and
Strategies - Hedging," below.
The values of foreign investments and the investment income
derived from them may also be affected unfavorably by changes in
currency exchange control regulations. Although the Fund will
invest only in securities denominated in foreign currencies that at
the time of investment do not have significant government-imposed
restrictions on conversion into U.S. dollars, there can be no
assurance against subsequent imposition of currency controls. In
addition, the values of foreign securities will fluctuate in
response to a variety of factors, including changes in U.S. and
foreign interest rates.
Portfolio Turnover. To the extent that increased portfolio
turnover results in gains from sales of securities held less than
three months, the Fund's ability to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") may be affected. Although
changes in the value of the Fund's portfolio securities subsequent
to their acquisition are reflected in the net asset value of the
Fund's shares, such changes will not affect the income received by
the Fund from such securities. The dividends paid by the Fund will
increase or decrease in relation to the income received by the Fund
from its investments, which will in any case be reduced by the
Fund's expenses before being distributed to the Fund's
shareholders.
Other Investment Techniques and Strategies
Borrowing. From time to time, the Fund may borrow from
banks on an unsecured basis. Such borrowing may be used to fund
shareholder redemptions or for other purposes. Any such borrowing
will be made only from banks, and pursuant to the requirements of
the Investment Company Act, will be made only to the extent that
the value of that Fund's total assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings
including the proposed borrowing and amounts covering the Fund's
obligations under "forward roll" transactions. If the value of the
Fund's assets so computed should fail to meet the 300% asset
coverage requirement, the Fund is required within three days to
reduce its bank debt to the extent necessary to meet such
requirement and may have to sell a portion of its investments at a
time when independent investment judgment would not dictate such
sale. Since substantially all of the Fund's assets fluctuate in
value, but borrowing obligations are fixed, when the Fund has
outstanding borrowings, its net asset value per share
correspondingly will tend to increase and decrease more when
portfolio assets fluctuate in value than otherwise would be the
case. The Fund does not intend to make any investment purchases
while its borrowings exceed 5% of its total assets.
When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or
sell such securities on a "delayed delivery" basis. Although the
Fund will enter into such transactions for the purpose of acquiring
securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the Fund may dispose of a commitment
prior to settlement. "When-issued" or "delayed delivery" refers to
securities whose terms and indenture are available and for which a
market exists, but which are not available for immediate delivery,
or to securities to be delivered at a later date. When such
transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a
later date. The Fund does not intend to make such purchases for
speculative purposes. The commitment to purchase a security for
which payment will be made on a future date may be deemed a
separate security and involve risk of loss if the value of the
security declines prior to the settlement date. During the period
between commitment by the Fund and settlement, no payment is made
for the securities purchased by the purchaser, and no interest
accrues to the purchaser from the transaction. Such securities are
subject to market fluctuation; the value at delivery may be less
than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government
securities or other high grade debt obligations at least equal to
the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to
secure what is considered to be an advantageous price and yield at
the time of entering into the obligation. When the Fund engages in
when-issued or delayed delivery transactions, it relies on the
buyer or seller, as the case may be, to consummate the transaction.
Failure of the buyer or seller to do so may result in the Fund
losing the opportunity to obtain a price and yield considered to be
advantageous. At the time the Fund makes a commitment to purchase
or sell a security on a when-issued or forward commitment basis, it
records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received, in
determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
When-issued transactions and forward commitments allow the
Fund a technique to use against anticipated changes in interest
rates and prices. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its
exposure to anticipated falling prices. In periods of falling
interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-
issued or forward commitment basis, thereby obtaining the benefit
of currently higher cash yields.
Participation Interests. The Fund may acquire participation
interests in U.S. dollar-denominated loans that are made to U.S. or
foreign companies (the "borrower"). They may be interests in, or
assignments of, the loan, and are acquired from banks or brokers
that have made the loan or are members of the lending syndicate.
The Manager has set certain creditworthiness standards for issuers
of loan participations, and monitors their creditworthiness. Some
borrowers may have senior securities rated as low as "C" by Moody's
or "D" by S&P, but may be deemed acceptable credit risks.
Participation interests are considered investments in illiquid
securities (see "Illiquid and Restricted Securities," above).
Their value primarily depends upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers
may have difficulty making payments. If a borrower fails to make
scheduled interest or principal payments, the Fund could experience
a reduction in its income and a decline in the net asset value of
its shares.
The Fund may invest in participation interests, subject to the
limitation, described in "Illiquid and Restricted Securities" in
the Prospectus on investments by the Fund in illiquid investments.
Participation interests provide the Fund an undivided interest in
a loan made by the issuing financial institution in the proportion
that the Fund's participation interest bears to the total principal
amount of the loan. No more than 5% of the Fund's net assets can
be invested in participation interests of the same borrower. The
issuing financial institution may have no obligation to the Fund
other than to pay the Fund the proportionate amount of the
principal and interest payments it receives. Participation
interests are primarily dependent upon the creditworthiness of the
borrowing corporation, which is obligated to make payments of
principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. In the event the
borrower fails to pay scheduled interest or principal payments, the
Fund could experience a reduction in its income and might
experience a decline in the value of that participation interest
and in the net asset value of its shares. In the event of a
failure by the financial institution to perform its obligation in
connection with the participation agreement, the Fund might incur
certain costs and delays in realizing payment or may suffer a loss
of principal and/or interest.
Repurchase Agreements. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an
approved vendor (a U.S. commercial bank, the U.S. branch of a
foreign bank or a broker-dealer which has been designated a primary
dealer in U.S. government securities, which must meet the credit
requirements set by the Fund's Board of Trustees from time to
time), for delivery on an agreed-upon future date. The resale
price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to resale
typically will occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the Investment
Company Act, collateralized by the underlying security. The Fund's
repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to fully collateralize the
repayment obligation. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is
financially sound and will continuously monitor the collateral's
value.
Reverse Repurchase Agreements. In a reverse repurchase
agreement, the Fund sells a security for cash and simultaneously
agrees to repurchase the security at a later date at an agreed upon
price. Anologous to "Repurchase Agreements" discussed above,
reverse repurchase agreements are a form of borrowing. Therefore,
the Fund's investment in reverse repurchase agreements shall be
subject to the same borrowing limits discussed under "Borrowing."
Illiquid and Restricted Securities. To enable the Fund to
sell restricted securities not registered under the Securities Act
of 1933, the Fund may have to cause those securities to be
registered. The expenses of registration of restricted securities
may be negotiated by the Fund with the issuer at the time such
securities are purchased by the Fund, if such registration is
required before such securities may be sold publicly. When
registration must be arranged because the Fund wishes to sell the
security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would
be permitted to sell them. The Fund would bear the risks of any
downward price fluctuation during that period. The Fund expects to
acquire Hybrid Instruments having regulatory or contractual
restrictions on their resale, which might limit the Fund's ability
to dispose of such securities and might lower the amount realizable
upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted and illiquid securities, as stated in the Prospectus.
Those percentage restrictions do not limit purchases of restricted
securities that are eligible for sale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933,
provided that those securities have been determined to be liquid by
the Board of Trustees of the Fund or by the Manager under Board-
approved guidelines. Those guidelines take into account the
trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the
Fund's holding of that security may be deemed to be illiquid.
Loans of Portfolio Securities. The Fund may lend its
portfolio securities subject to the restrictions stated in the
Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day,
at least equal the market value of the loaned securities and must
consist of cash, bank letters of credit, U.S. government
securities, or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by the Fund if
the demand meets the terms of the letter. Such terms and the
issuing bank must be satisfactory to the Fund. In a portfolio
securities lending transaction, the Fund receives from the borrower
an amount equal to the interest paid or the dividends declared on
the loaned securities during the term of the loan as well as the
interest on the collateral securities, less any finders' or
administrative fees the Fund pays in arranging the loan. The Fund
may share the interest it receives on the collateral securities
with the borrower as long as it realizes at least a minimum amount
of interest required by the lending guidelines established by its
Board of Trustees. The Fund will not lend its portfolio securities
to any officer, trustee, employee or affiliate of the Fund or its
Manager. The terms of the Fund's loans must meet certain tests
under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five business days' notice or in time to vote
on any important matter.
Hedging. As described in the Prospectus, the Fund may
employ one or more types of hedging instruments. When hedging to
attempt to protect against declines in the market value of the
Fund's portfolio, to permit the Fund to retain unrealized gains in
the value of portfolio securities which have appreciated, or to
facilitate selling securities for investment reasons, the Fund may:
(i) sell futures contracts, (ii) buy puts on such futures contracts
or securities, or (iii) write calls on securities held by it or on
futures contracts. When hedging to attempt to protect against the
possibility that portfolio securities are not fully included in a
rise in value of the securities or commodities markets, the Fund
may: (i) buy futures contracts, or (ii) buy calls or write puts on
such futures contracts, commodity indices, financial indices, or on
the Fund's securities. Covered calls and puts may also be written
on debt securities to attempt to increase the Fund's income. When
hedging to protect against declines in the dollar value of a
foreign currency-denominated security, the Fund may: (a) buy puts
on that foreign currency and on foreign currency Futures, (b) write
calls on that currency or on such futures contracts, or (c) enter
into forward contracts at a higher or lower rate than the spot
("cash") rate.
Additional Information about the hedging instruments the Fund
may use is provided below. In the future, the Fund may employ
hedging instruments and strategies that are not presently
contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
Writing Covered Call Options. When the Fund writes a call
on a security, future, index or currency, it receives a premium and
agrees to sell the callable investment to a purchaser of a
corresponding call on the same security during the call period at
a fixed exercise price (which may differ from the market price of
the underlying security), regardless of market price changes
during the call period. The Fund has retained the risk of loss
should the price of the underlying security decline during the call
period, which may be offset to some extent by the premium.
The Fund may also write call options on financial and
commodity indices. When writing a call on a index, the Fund
receives a premium and agrees to pay to the call buyer a cash
amount equal to the appreciation of the index in excess of the
option strike price over the call period. If the index declines in
value the Fund has no payment obligation and retains the option
premium. When writing a call option on an index, the Fund will
segregate liquid assets equal to the settlement value of the
option.
To terminate its obligation on a call it has written, the Fund
may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon
whether the net of the amount of the option transaction costs and
the premium received on the call written is more or less than the
price of the call subsequently purchased. A profit may also be
realized if the call lapses unexercised, because the Fund retains
the underlying investment and the premium received. Any such
profits are considered short-term capital gains for Federal income
tax purposes, and when distributed by the Fund are taxable as
ordinary income. An option position may be closed out only on a
market that provides secondary trading for option of the same
series, and there is no assurance that a liquid secondary market
will exist for a particular option. If the Fund could not effect
a closing purchase transaction due to lack of a market, it would
have to hold the callable investments until the call lapsed or was
exercised.
The Fund may also write calls on futures contracts without
owning a futures contract or a deliverable security, provided that
at the time the call is written, the Fund covers the call by
segregating in escrow an equivalent dollar amount of liquid assets.
The Fund will segregate additional liquid assets if the value of
the escrowed assets drops below 100% of the obligation under the
futures contracts. In no circumstances would an exercise notice
require the Fund to deliver a futures contract; it would simply put
the Fund in a short futures position, which is permitted by the
Fund's hedging policies.
Writing Put Options. A put option on securities, futures
contracts, financial and commodity indices, and currencies, gives
the purchaser the right to sell, and the writer the obligation to
buy, the underlying investment at the exercise price during the
option period. A put option on an index gives the purchaser the
right to collect a cash payment and the writer the obligation to
pay the decline in value of the index below the strike price during
the option period. The premium the Fund receives from writing a
put option represents a profit, as long as the price of the
underlying investment remains above the exercise price. However,
the Fund has also assumed the obligation during the option period
to either buy the underlying investment from the buyer of the put
at the exercise price or pay the cash value of the decline in the
index below the exercise price, even though the value of the
investment may fall below the exercise price. If the put lapses
unexercised, the Fund (as the writer of the put) realizes a gain in
the amount of the premium. If the put is exercised, the Fund must
fulfill its obligation to purchase the underlying investment at the
exercise price or make a cash payment equal to the decline in value
of the index, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss,
equal to the sum of the current market value of the underlying
investment and the premium received minus the sum of the exercise
price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for
the underlying asset, the Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing
the segregated assets or writing calls against those assets. As
long as the obligation of the Fund as the put writer continues, it
may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring the Fund to take delivery of
the underlying security against payment of the exercise price. The
Fund has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at
any time prior to the termination of its obligation as the writer
of the put. This obligation terminates upon expiration of the put,
or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that
previously sold. Once the Fund has been assigned an exercise
notice, it is thereafter not allowed to effect a closing purchase
transaction.
The Fund may effect a closing purchase transaction to realize
a profit on an outstanding put option it has written or to prevent
an underlying security, futures contract, swap or index from being
put. Furthermore, effecting such a closing purchase transaction
will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by the deposited assets, or
to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss
from a closing purchase transaction if the cost of the transaction
is less or more than the premium received from writing the option.
As above for writing covered calls, any and all such profits
described herein from writing puts are considered short-term gains
for Federal tax purposes, and when distributed by the Fund, are
taxable as ordinary income.
Purchasing Calls and Puts. When the Fund purchases a call
(other than in a closing purchase transaction), it pays a premium
and, except as to calls on indices or futures contracts, has the
right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at
a fixed exercise price. When the Fund purchases a call on an index
or future contract, it pays a premium, but settlement is in cash
rather than by delivery of the underlying investment to the Fund.
In purchasing a call, the Fund benefits only if the call is sold at
a profit or if, during the call period, the market price of the
underlying investment is above the sum of the exercise price plus
the transaction costs and the premium paid and the call is
exercised. If the call is not exercised or sold (whether or not at
a profit), it will become worthless at its expiration date and the
Fund will lose its premium payment and the right to purchase the
underlying investment.
When the Fund purchases a put, it pays a premium and, except
as to puts on indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying
a put on an investment the Fund owns enables the Fund to protect
itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling such
underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying
investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless
at its expiration date, and the Fund will lose its premium payment
and the right to sell the underlying investment. The put may,
however, be sold prior to expiration (whether or not at a profit.)
Buying a put on an investment it does not own, either a put on
an index or a put on a Future not held by the Fund, permits the
Fund either to resell the put or buy the underlying investment and
sell it at the exercise price. The resale price of the put will
vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise
price and as a result the put is not exercised, the put will become
worthless on its expiration date. When the Fund purchases a put on
an index, or on a Future not held by it, the put protects the Fund
to the extent that the index moves in a similar pattern to the
securities held. In the case of a put on an index or Future,
settlement is in cash rather than by delivery by the Fund of the
underlying investment.
Puts and calls on broadly-based indices or futures contracts
are similar to puts and calls on securities except that all
settlements are in cash and gain or loss depends on changes in the
index or futures contracts in question (and thus on price movements
in the securities markets generally) rather than on price movements
in individual securities or futures contracts. When the Fund buys
a call on an index or futures contracts, it pays a premium. During
the call period, upon exercise of a call by the Fund, a seller of
a corresponding call on the same investment will pay the Fund an
amount of cash to settle the call if the closing level of the index
or Future upon which the call is based is greater than the exercise
price of the call. That cash payment is equal to the difference
between the closing price of the index or futures contracts and the
exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each
point of difference. When the Fund buys a put on an index or
futures contracts, it pays a premium and has the right during the
put period to require a seller of a corresponding put, upon the
Fund's exercise of its put, to deliver to the Fund an amount of
cash to settle the put if the closing level of the index or futures
contracts upon which the put is based is less than the exercise
price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which
provides secondary trading for options of the same series and there
is no assurance that a liquid secondary market will exist for any
particular option. The Fund's option activities may affect its
turnover rate and brokerage commissions. The exercise by the Fund
of puts on securities will cause the sale of related investments,
increasing portfolio turnover. Although such exercise is within
the Fund's control, holding a put might cause the Fund to sell the
related investments for reasons which would not exist in the
absence of the put. The Fund will pay a brokerage commission each
time it buys a put or call, sells a put or call, or buys or sells
an underlying investment in connection with the exercise of a put
or call. Such commissions may be higher than those which would
apply to direct purchases or sales of such underlying investments.
Premiums paid for options are small in relation to the market value
of the related investments, and consequently, put or call options
offer large amounts of leverage. The leverage offered by trading
in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investments.
Options on Foreign Currencies. The Fund intends to write
and purchase calls and puts on foreign currencies. The Fund may
purchase and write puts and calls on foreign currencies that are
traded on a securities or commodities exchange or over-the-counter
markets or are quoted by major recognized dealers in such options.
It does so to protect against declines in the dollar value of
foreign securities and against increases in the dollar cost of
foreign securities to be acquired. If the Manager anticipates a
rise in the dollar value of a foreign currency in which securities
to be acquired are denominated, the increased cost of such
securities may be partially offset by purchasing calls or writing
puts on that foreign currency. If a decline in the dollar value of
a foreign currency is anticipated, the decline in value of
portfolio securities denominated in that currency may be partially
offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations
adverse to the Fund's position, it would lose the premium it paid
and transaction costs.
A call written on a foreign currency by the Fund is covered if
the Fund owns an underlying security denominated in the foreign
currency covered by the call or has an absolute and immediate right
to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be
written by the Fund on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the
Fund owns or has the right to acquire and which is denominated in
the currency underlying the option due to an expected adverse
change in the exchange rate. In such circumstances, the Fund
covers the option by maintaining in a segregated account with the
Fund's Custodian, cash or U.S. government securities or other
liquid securities in an amount equal to the exercise price of the
option.
Interest Rate Futures. No price is paid or received upon
the purchase or sale of an Interest Rate Future. Interest Rate
Futures obligate one party to deliver and the other party to take
a specific debt security or amount of foreign currency,
respectively, at a specified price on a specified date. Upon
entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be
deposited with the Fund's Custodian in an account registered in the
futures broker's name; however the futures broker can gain access
to that account only under specified conditions. As the futures
contract is marked to market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be
made to and from the futures broker on a daily basis. Prior to
expiration of the futures contract, if the Fund elects to close out
its position by taking an opposite position, a final determination
of variation margin is made, additional cash is required to be paid
by or released to the Fund, and any loss or gain is realized for
tax purposes. Although Interest Rate Futures by their terms call
for settlement by delivery or acquisition of debt securities, in
most cases the obligation is fulfilled by entering into an
offsetting position. All futures transactions are effected through
a clearinghouse associated with the exchange on which the contracts
are traded.
Commodity Futures. No price is paid upon the purchase or
sale of a commodity futures contract. Commodity futures contracts
obligate one party to deliver and another party to purchase a
specific commodity at a specified price on a specified date.
Commodity futures contracts are traded on domestic and
international commodity exchanges and have standardized contract
terms. Similar to Interest Rate Futures, the Fund will deposit an
initial margin requirement with its Custodian in an account
registered in the futures broker's name. Commodity futures
contracts are marked to market daily to reflect changes in market
value.
Financial Futures. Financial Futures are similar to
Interest Rate Futures except that settlement is made in cash, and
net gain or loss on options on Financial Futures depends on price
movements of the securities included in the index. The strategies
which the Fund employs regarding Financial Futures are similar to
those described above with regard to Interest Rate Futures.
Foreign Currency Forward Contracts. A Forward Contract
involves bilateral obligations of one party to purchase, and
another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract
agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts typically, although not
exclusively, relate to foreign currency transactions, and are
traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. The
Fund may enter into a Forward Contract to "lock in" the U.S. dollar
price of an investment denominated in a foreign currency which it
has purchased or sold but which has not yet settled, or to protect
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency.
The Fund may use Forward Contracts to protect against
uncertainty in the level of future exchange rates. The use of
Forward Contracts does not eliminate fluctuations in the prices of
the underlying investments the Fund owns or intends to acquire, but
it does fix a rate of exchange in advance. In addition, although
Forward Contracts limit the risk of loss due to a decline in the
value of the hedged currencies, at the same time they limit any
potential gain that might result should the value of the
currencies increase.
The Fund may also enter into a forward contract to sell a
foreign currency other than that in which the underlying investment
is denominated. This technique is referred to as cross hedging,
and is done when the foreign currency sold through the forward
contract is correlated with the foreign currency or currencies in
which the underlying investment positions are denominated. The
foreign currency sold through the forward contract may be sold for
a fixed U.S. dollar amount or for a fixed amount of another
currency correlated with the U.S. dollar.
The success of cross hedging is dependent on many factors,
including the ability of the Manager to correctly identify and
monitor the correlation among foreign currencies and between
foreign currencies and the U.S. dollar. To the extent that these
correlations are not identical, the Fund may experience losses or
gains on both the underlying security and the cross currency hedge.
However, the Manager shall determine that any cross hedge is a bona
fide hedge in that it is expected to reduce the volatility of the
Fund's total return.
The Fund may enter into Forward Contracts with respect to
specific transactions. For example, when the Fund enters into a
contract for the purchase or sale of an investment denominated in
a foreign currency, or when the Fund anticipates receipt of
dividend payments in a foreign currency, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment. To do so, the Fund enters into a
Forward Contract, for a fixed amount of U.S. dollars per unit of
foreign currency, for the purchase or sale of the amount of foreign
currency involved in the underlying transaction ("transaction
hedge"). The Fund will thereby be able to protect itself against
a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period
between the date on which the investment is purchased or sold, or
on which the payment is declared, and the date on which such
payments are made or received.
The Fund may also use Forward Contracts to lock in the value
of portfolio positions ("position hedges"). In a position hedge,
for example, when the Fund believes that a foreign currency in
which the Fund has investment holdings may suffer a substantial
decline against the U.S. dollar, the Fund may enter into a forward
sale contract to sell an amount of that foreign currency for a
fixed U.S. dollar amount. Additionally, when the Fund believes
that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to
buy that foreign currency for a fixed U.S. dollar amount.
The Fund may also cross hedge its portfolio positions by
entering into a forward contract to buy or sell a foreign currency
other than the currency in which its underlying investments are
denominated for a fixed amount in U.S. dollars or a fixed amount in
another currency which is correlated with the U.S. dollar. If the
Fund does not own portfolio securities denominated in the currency
on the long side of the cross hedge, the Fund will not be required
to later purchase portfolio securities denominated in that
currency. Instead, the Fund may unwind the cross hedge by
reversing the original transaction, that is, by transacting in a
forward contract that is opposite to the original cross hedge or it
may extend the hedge by "rolling" the hedge forward.
The Fund's Custodian will place cash or U.S. Government
securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the aggregate
amount of the Fund's commitment under Forward Contracts to cover
its short positions. The Fund will not enter into such Forward
Contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency
or a closely-correlated currency. The Fund, however, in order to
avoid excess transactions and transaction costs, may maintain a net
exposure to Forward Contracts in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency
or a closely-correlated currency provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any
currency, at least equal at all times to the amount of such excess.
As an alternative, the Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged by
a forward sale contract at a price no higher than the forward
contract price or the Fund may purchase a put option permitting the
Fund to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had
not entered into such contracts.
The precise matching of the Forward Contract amounts and the
value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of
these securities between the date the Forward Contract is entered
into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot
(i.e., cash) market (and bear the expense of such purchase), if the
market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver. The projection of short-term
currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly
uncertain. Forward Contracts involve the risk that anticipated
currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring the
Fund to sell a currency, the Fund may either sell a portfolio
security and use the sale proceeds to make delivery of the currency
or retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to
which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly,
the Fund may close out a Forward Contract requiring it to purchase
a specified currency by entering into a second contract entitling
it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss
as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates
of the first contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies
with factors such as the currencies involved, the length of the
contract period and the market conditions then prevailing. Because
Forward Contracts are usually entered into on a principal basis, no
fees or commissions are involved. Such contracts are not traded on
an exchange. Therefore, the Fund must evaluate the credit and
performance risk of each particular counterparty under a Forward
Contract.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund may
convert foreign currency from time to time, and investors should be
aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to
realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.
In addition to foreign currency contracts, the Fund may enter
into forward contracts for the purchase or sale of commodities,
securities or indices. Forward contracts for these underlying cash
instruments operate the same as exchange traded futures contracts
with two important differences. First, forward contracts are
individually negotiated while futures contracts are standardized in
terms of amount, maturity and underlying cash instrument. Second,
forward contracts expose the investor to the credit risk of the
counterparty while futures contracts are settled by the exchange
clearinghouse.
Interest Rate Swap Transactions. In an interest rate swap,
the Fund and another party exchange their right to receive, or
their obligation to pay, interest on a security. For example, they
may swap a right to receive floating rate interest payments for
fixed rate payments. The Fund enters into swaps only on securities
it owns. The Fund may not enter into an interest swap for hedging
purposes with respect to more than 25% of its total assets. The
Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that
exceed the amounts it is entitled to receive, and it will adjust
that amount daily, as needed. Interest rate swap agreements entail
both interest rate risk and credit risk. There is a risk that,
based on movements of interest rates in the future, the payments
made by the Fund under a swap agreement will have been greater than
those received by it. Credit risk arises from the possibility that
the counterparty will default. If the counterparty to an interest
rate swap defaults, the Fund's loss will consist of the net amount
of contractual interest payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an
ongoing basis. The Fund will enter into swap transactions with
appropriate counterparties pursuant to master netting agreements.
Additional Information About Hedging Instruments and Their
Use. The Fund's Custodian, or a securities depository acting for
the Custodian, will act as the Fund's escrow agent, through the
facilities of the Options Clearing Corporation ("OCC"), as to the
investments on which the Fund has written options traded on
exchanges or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release
the securities on the expiration of the option or upon the Fund's
entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for
options of the same series, and there is no assurance that a liquid
secondary market will exist for any particular option.
When the Fund writes an over-the-counter("OTC") option, it
will enter into an arrangement with a primary U.S. Government
securities dealer, which would establish a formula price at which
the Fund would have the absolute right to repurchase that OTC
option. That formula price would generally be based on a multiple
of the premium received for the option, plus the amount by which
the option is exercisable below the market price of the underlying
security (that is, the extent to which the option is "in-the-
money"). When the Fund writes an OTC option, it will treat as
illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities, stated in the Prospectus) the
mark-to-market value of any OTC option held by it. The Securities
and Exchange Commission is evaluating whether OTC options should be
considered liquid securities, and the procedure described above
could be affected by the outcome of that evaluation.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund
may cause the Fund to sell related portfolio securities, thus
increasing its turnover rate in a manner beyond the Fund's control.
The exercise by the Fund of puts on securities or Futures may cause
the sale of related investments, also increasing portfolio
turnover. Although such exercise is within the Fund's control,
holding a put might cause the Fund to sell the related investments
for reasons which would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys or sells a
put, a call, or an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than
those which would apply to direct purchases or sales of the
underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and
consequently, put and call options offer large amounts of leverage.
The leverage offered by trading in options could result in the
Fund's net asset value being more sensitive to changes in the value
of the underlying investments.
Regulatory Aspects of Hedging Instruments. The Fund is
required to operate within certain guidelines and restrictions with
respect to its use of Futures and options on Futures established by
the Commodity Futures Trading Commission ("CFTC"). In particular,
the Fund is exempted from registration with the CFTC as a
"commodity pool operator" if the Fund complies with the
requirements of the Rule adopted by the CFTC. The Rule does not
limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its
aggregate Futures margin and related options premiums to no more
than 5% of the Fund's net assets for hedging strategies that are
not considered bona fide hedging strategies under the Rule.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of
options that may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options
were written or purchased on the same or different exchanges or are
held in one or more accounts or through one or more different
exchanges or through one or more brokers. Thus, the number of
options which the Fund may write or hold may be affected by options
written or held by other entities, including other investment
companies having the same adviser as the Fund (or an adviser that
is an affiliate of the Fund's adviser. The exchanges also impose
position limits on Futures transactions which apply to Futures. An
exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the
Fund buys or sells a Future, the Fund will maintain, in a
segregated account or accounts with its Custodian, cash or readily-
marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the net exposure between the
market value and the contract price of the Future, less the margin
deposit applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The
Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code (although it reserves the right not to
qualify). That qualification enables the Fund to "pass through"
its income and realized capital gains to shareholders without
having to pay tax on them. This avoids a "double tax" on that
income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund
(unless the Fund's shares are held in a retirement account or the
shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that
less than 30% of its gross income must be derived from gains
realized on the sale of securities held for less than three months.
To comply with this 30% cap, the Fund will limit the extent to
which it engages in the following activities, but will not be
precluded from them: (i) selling investments, including Futures,
held for less than three months, whether or not they were purchased
on the exercise of a call held by the Fund; (ii) purchasing calls
or puts which expire in less than three months; (iii) effecting
closing transactions with respect to calls or puts purchased less
than three months previously; (iv) exercising puts or calls held by
the Fund for less than three months; or (v) writing calls on
investments held for less than three months.
Certain foreign currency exchange contracts ("Forward
Contracts") in which the Fund may invest are treated as "section
1256 contracts." Gains or losses relating to section 1256
contracts generally are characterized under the Internal Revenue
Code as 60% long-term and 40% short-term capital gains or losses.
However, foreign currency gains or losses arising from certain
section 1256 contracts (including Forward Contracts) generally are
treated as ordinary income or loss. In addition, section 1256
contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses
are treated as though they were realized. These contracts also may
be marked-to-market for purposes of the excise tax applicable to
investment company distributions and for other purposes under rules
prescribed pursuant to the Internal Revenue Code. An election can
be made by the Fund to exempt these transactions from this marked-
to-market treatment.
Certain Forward Contracts entered into by the Fund may result
in "straddles" for Federal income tax purposes. The straddle rules
may affect the character and timing of gains (or losses) recognized
by the Fund on straddle positions. Generally, a loss sustained on
the disposition of a position making up a straddle is allowed only
to the extent such loss exceeds any unrecognized gain in the
offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain
in the offsetting positions making up the straddle, or the
offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable
to fluctuations in exchange rates that occur between the time the
Fund accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in
a foreign currency and on disposition of foreign currency forward
contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date of acquisition of the
security or contract and the date of disposition also are treated
as ordinary gain or loss. Currency gains and losses are offset
against market gains and losses on each trade before determining a
net "Section 988" gain or loss under the Internal Revenue Code for
that trade, which may increase or decrease the amount of the Fund's
investment company income available for distribution to its
shareholders.
Risks of Hedging With Options and Futures. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular
option. In addition to the risks associated with hedging that are
discussed in the Prospectus and above, there is a risk in using
short hedging by selling futures contracts to attempt to protect
against decline in value of the Fund's portfolio securities (due,
for example, to an increase in interest rates) that the prices of
such futures contracts will correlate imperfectly with the behavior
of the cash (i.e., market value) prices of the Fund's securities.
The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of
those markets. First, all participants in the futures markets are
subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close
out futures contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets depend on
participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures markets could be
reduced, thus producing distortion. Third, from the point of view
of speculators, the deposit requirements in the futures markets are
less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition
of the Fund's portfolio diverges from the securities included in
the applicable index. To compensate for the imperfect correlation
of movements in the price of the investments being hedged and
movements in the price of the hedging instruments, the Fund may use
hedging instruments in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of
the prices of the securities being hedged is more than the
historical volatility of the applicable index. It is also possible
that if the Fund has used hedging instruments in a short hedge, the
market may advance and the value of securities held in the Fund's
portfolio may decline. If that occurred, the Fund would lose money
on the hedging instruments and also experience a decline in value
in its portfolio securities. However, while this could occur for
a very brief period or to a very small degree, over time the value
of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments
are based.
If the Fund uses hedging instruments to establish a position
in the commodities markets as a temporary substitute for the
purchase of commodity-linked securities (long hedging) by buying
futures contracts and/or calls on such futures contracts or on debt
securities, it is possible that the market may decline; if the Fund
then concludes not to invest in such securities at that time
because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the hedging
instruments that is not offset by a reduction in the price of the
commodity-linked securities purchased.
Short Sales "Against-the-Box." In a short sale, the seller
does not own the security that is sold, but normally borrows the
security to fulfill the delivery obligation. The seller later buys
the security to repay the loan, in the expectation that the price
of the security will be lower when the purchase is made, resulting
in a gain. In these transactions, the Fund owns an equivalent
amount of the securities sold short. This technique is primarily
used for tax purposes.
Other Investment Restrictions
The Fund's most significant investment restrictions are set
forth in the Prospectus. There are additional investment
restrictions that the Fund must follow that are also fundamental
policies. Fundamental policies and the Fund's investment
objectives cannot be changed without the vote of a "majority" of
the Fund's outstanding voting securities. Under the Investment
Company Act, such a "majority" vote is defined as the vote of the
holders of the lesser of: (1) 67% or more of the shares present or
represented by proxy at a shareholder meeting if the holders of
more than 50% of the outstanding shares are present or represented
by proxy, or (2) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
buy or sell real estate; however, the Fund may invest in
debt securities secured by real estate or interests therein or
issued by companies, including real estate investment trusts, which
invest in real estate or interests therein, and also invest in real
estate operating companies and shares of companies engaged in other
real estate related businesses;
buy securities on margin, except that the Fund may make
margin deposits in connection with any of the Hedging Instruments
which it may use;
underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter for purposes of
the Securities Act of 1933;
buy securities of any issuer if those officers, Trustees or
Directors of the Fund or the Manager who beneficially own more than
0.5% of the securities of such issuer together own more than 5% of
the securities of such issuer;
invest in oil, gas, or other mineral exploration or
development programs or leases, except that the Fund may invest in
Hybrid Instruments, options swaps, futures contracts and other
investments which are linked to oil, gas and mineral values; or
buy the securities of any company for the purpose of
exercising management control, except in connection with a merger,
consolidation, reorganization or acquisition of assets.
For purposes of the Fund's policy not to concentrate its
assets as described in the Prospectus, the Fund has adopted the
corporate industry classifications set forth in Appendix A to this
Statement of Additional Information.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the
Fund is not required to hold, and does not plan to hold, regular
annual meetings of shareholders. The Fund will hold meetings when
required to do so by the Investment Company Act or other applicable
law, or when a shareholder meeting is called by the Trustees or
upon proper request of the shareholders. Shareholders have the
right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Fund, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a
Trustee upon the written request of the record holders of 10% of
its outstanding shares. In addition, if the Trustees receive a
request from at least 10 shareholders (who have been shareholders
for at least six months) holding shares of the Fund valued at
$25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate
with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all
other shareholders at the applicants' expense, or the Trustees may
take such other action as set forth under Section 16(c) of the
Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer
of shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of
its property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a business trust (such as the Fund) to be held
personally liable as a "partner" under certain circumstances, the
risk of a Fund shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its
obligations described above. Any person doing business with the
Trust, and any shareholder of the Trust, agrees under the Trust's
Declaration of Trust to look solely to the assets of the Trust for
satisfaction of any claim or demand which may arise out of any
dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and
officers and their principal occupations and business affiliations
and occupations during the past five years are set forth below.
Each Trustee is also a Trustee, Director or Managing General
Partner of Daily Cash Accumulation Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust, Centennial America Fund, L.P., Oppenheimer Total
Return Fund, Inc., Oppenheimer Equity Income Fund, Oppenheimer
Champion Income Fund, Oppenheimer High Yield Fund, Oppenheimer
International Bond Fund, Oppenheimer Cash Reserves, Oppenheimer
Variable Account Funds, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Integrity Funds, Oppenheimer Strategic Funds Trust,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Tax-Exempt
Fund, Oppenheimer Limited-Term Government Fund, and The New York
Tax-Exempt Income Fund, Inc. (all of the foregoing are collectively
referred to as the "Denver-based Oppenheimer funds") except for Ms.
Macaskill and Mr. Fossel, who are Trustees, Directors or Managing
General Partners of all of the Denver-based Oppenheimer funds
except Oppenheimer Integrity Funds, Oppenheimer Strategic Income
Fund, Panorama Series Fund, Inc. and Oppenheimer Variable Accounts
Fund and Mr. Fossel, who is not a trustee of Centennial New York
Tax-Exempt Trust or a Managing General Partner of Centennial
America Fund, L.P. Messrs. Bishop, Bowen, Donohue, Farrar and Zack
hold similar positions as officers of all such funds. Ms.
Macaskill is President and Mr. Swain is Chairman and Chief
Executive Officer of the Denver-based Oppenheimer funds. As of
January 15, 1997, the Trustees and officers of the Fund as a group
owned of record or beneficially less than 1% of each class of
shares of the Fund. The foregoing statement does not reflect
ownership of shares held of record by an employee benefit plan for
employees of the Manager (for which plan two of the officers listed
below, Ms. Macaskill and Mr. Donohue, are trustees), other than the
shares beneficially owned under that plan by the officers of the
Fund listed above.
Robert G. Avis, Trustee*, Age: 65
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer)
and A.G. Edwards, Inc. (its parent holding company); Chairman
of A.G.E. Asset Management and A.G. Edwards Trust Company (its
affiliated investment adviser and trust company,
respectively).
William A. Baker, Trustee; Age: 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 66
1501 Quail Street, Newport Beach, California 92660
Chairman and CEO of Universal Space Lines, Inc. (a space
services management company); formerly Vice President of
McDonnell Douglas Space Systems, Co. and associated with the
National Aeronautics and Space Administration.
Jon S. Fossel, Trustee*: Age: 54
Box 44, Mead Street, Waccabuc, New York 10597
Member of the Board of Governors of the Investment Company
Institute (a national trade association of investment
companies); Chairman of the Investment Company Institute
Education Foundation; formerly Chairman and Director of the
Manager; President and Director of Oppenheimer Acquisition
Corp. ("OAC"), the Manager's parent holding company; a
director of Shareholder Services, Inc. ("SSI") and Shareholder
Financial Services, Inc. ("SFSI"), transfer agent subsidiaries
of the Manager.
Sam Freedman, Trustee; Age: 55
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of
OppenheimerFunds Services; Chairman, Chief Executive Officer
and a director of Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"); Vice President
and a director of Oppenheimer Acquisition Corp. ("OAC") and a
director of OppenheimerFunds, Inc. ("OFI").
Raymond J. Kalinowski, Trustee; Age: 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer
products training company); formerly Vice Chairman and a
director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a
Senior Vice President.
C. Howard Kast, Trustee; Age: 75
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
___________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Robert M. Kirchner, Trustee; Age: 75
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Trustee*; Age: 48
Two World Trade Center, New York, New York 10048-0203.
President, Chief Executive Officer and a Director of the
Manager and HarbourView; Chairman and a Director of SSI and
SFSI, President and a Director of OAC and HarbourView; and a
Director of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; a Director of Oppenheimer
Real Asset Management, Inc.; formerly an Executive Vice
President of the Manager.
Ned M. Steel, Trustee; Age: 81
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of
Visiting Nurse Corporation of Colorado; formerly Senior Vice
President and a Director of Van Gilder Insurance Corp.
(insurance brokers).
James C. Swain, Chairman, Chief Executive Officer and
Trustee*; Age: 63
6803 South Tuscon Way, Englewood, Colorado 80112
Vice Chairman of the Manager; formerly President and a
director of Centennial Asset Management Corporation, an
investment adviser subsidiary of the Manager ("Centennial").
Andrew J. Donohue, Vice President and Secretary; Age: 46
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager
and Oppenheimer Funds Distributor, Inc. (the "Distributor");
an officer of other Oppenheimer funds; President and director
of Centennial; Executive Vice President, General Counsel and
director of HarbourView, SSI, SFSI and Oppenheimer Partnership
Holdings, Inc.; President and director of Oppenheiemer Real
Asset Management, Inc.; General Counsel of OAC; Executive Vice
President, Chief Legal Officer and director of MultiSource
Services, Inc. (a broker-dealer); formerly Senior Vice
President and Associate General Counsel of the Manager and the
Distributor, Partner in Kraft & McManimon (a law firm); an
officer of First Investors Corporation (a broker-dealer) and
First Investors Management Company, Inc. (broker-dealer and
investment adviser) and a director and an officer of the First
Investors Family of Funds and First Investors Life Insurance
Company.
Russell Read, Vice President and Portfolio Manager; Age: 33
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of OFI; formerly an
investment manager for The Prudential and Associate Economist
for the First National Bank of Chicago.
___________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Mark J.P. Anson, Vice President and Portfolio Manager; Age: 38
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of OFI; formerly a
Registered Operations Principal on the equity derivatives desk
at Solomon Brothers, Inc.; and formerly an attorney with
Chapman and Cutler.
George C. Bowen, Vice President, Treasurer and Assistant
Secretary; Age: 60
6803 South Tuscon Way, Englewood, Colorado 80112
Senior Vice President and Treasurer of the Manager; Vice
President and Treasurer of the Distributor and HarbourView;
Senior Vice President, Treasurer, Assistant Secretary and a
director of Centennial; Vice President, Treasurer and
Secretary of SSI and SFSI; Treasurer of OAC, Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc.;
Chief Executive Officer, Treasurer and a director of
MultiSource Services, Inc.; an officer of other Oppenheimer
funds.
Robert G. Zack, Assistant Secretary; Age: 48
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the
Manager; Assistant Secretary of SSI and SFSI; an officer of
other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age: 38
6803 South Tuscon Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; formerly a Fund Controller
for the Manager, prior to which he was an Accountant for Yale
& Seffinger, P.C., an accounting firm, and previously an
Accountant and Commissions Supervisor for Stuart James Company
Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 31
6803 South Tuscon Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting, an
officer of other Oppenheimer funds; formerly a Fund Controller
for the Manager.
Remuneration of Trustees. The officers of the Fund and
certain trustees of the Fund (Ms. Macaskill and Mr. Swain) who are
affiliated with the Manager receive no salary or fee from the Fund.
The compensation from all of the Denver-based Oppenheimer funds
includes the Fund and is compensation received as a director,
Trustee or General Managing Partner or member of a committee of the
Board of those funds during the calendar year 1996.
Total
Aggregate Compensation
Compensation From All
From the Denver-based
Name and Position Fund2 OppenheimerFunds1
Robert G. Avis, Trustee $201 $58,003
William A. Baker, Audit $279 $79,715
and Review Committee
Chairman and Trustee
Charles Conrad, Jr., Audit $260 $74,717
and Review Committee
Member and Trustee
Sam Freedman, Trustee $ $29,502
Raymond J. Kalinowski, $201 $74,173
Risk Management, Oversight
Committee Member and
Trustee
C. Howard Kast $201 $74,173
Risk Management, Oversight
Committee Member and
Trustee
Robert M. Kirchner, Audit $260 $74,717
and Review Committee
Member and Trustee
Ned M. Steel, Trustee $201 $58,003
________________
1 For the 1996 calendar year.
2 Estimated to be received during the current fiscal year ending
August 31, 1997.
Major Shareholders. As of January 15, 1997, no person owned
of record or was known by the Fund to own more than 5% of the
Fund's outstanding Class A, Class B, Class C or Class Y shares
except for OppenheimerFunds, Inc., which owns 100% of each class as
the original shareholder.
The Manager and Its Affiliates. The Manager is wholly-owned by
OppenheimerFunds, Inc. ("OFI"), which is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled
by Massachusetts Mutual Life Insurance Company. OAC is also owned
in part by certain of OFI's directors and officers, some of whom
also serve as officers of the Fund, and two of whom (Ms. Macaskill
and Mr. Swain) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or
take advantage of the Fund's portfolio transactions. Compliance
with the Code of Ethics is carefully monitored and strictly
enforced by the Manager.
The Investment Advisory Agreement. The investment advisory
agreement between OFI and the Fund requires OFI, at its expense, to
provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation
and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of
proxy materials and registration statements for continuous public
sale of shares of the Fund.
Expenses not expressly assumed by OFI under the advisory
agreement or by the Distributor under the General Distributor's
Agreement are paid by the Fund. The advisory agreement lists
examples of expenses paid by the Fund, the major categories of
which relate to interest, taxes, brokerage commissions, fees to
certain Trustees, legal and audit expenses, custodian and transfer
agent and custodian expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses,
including litigation costs.
The advisory agreement and the sub-advisory agreemen provide
that in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or reckless disregard
for its obligations and duties under the advisory agreement, OFI
and the Manager are not liable for any loss resulting from a good
faith error or omission on their part with respect to any of its
duties thereunder. The advisory agreement and sub-advisory
agreement permit OFI and the Manager to act as investment adviser
for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with other investment companies for
which it may act as investment adviser or general distributor. If
OFI or the Manager shall no longer act as an investment adviser to
the Fund, the right of the Fund to use the name "Oppenheimer" as
part of its name may be withdrawn.
The Distributor. Under its General Distributor's Agreement
with the Fund, the Distributor acts as the Fund's principal
underwriter in the continuous public offering of the Fund's Class
A, Class B, Class C and Class Y shares, but is not obligated to
sell a specific number of shares. Expenses normally attributable
to sales (excluding payments under the Distribution and Service
Plans but including advertising and the cost of printing and
mailing prospectuses other than those furnished to existing
shareholders), are borne by the Distributor. For additional
information about distribution of the Fund's shares and the
expenses connected with such activities, please refer to
"Distribution and Service Plans," below.
The Transfer Agent. OppenheimerFunds Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One
of the duties of the Manager under the sub-advisory agreement is to
arrange the portfolio transactions for the Fund. The sub-advisory
agreement contains provisions relating to the employment of broker-
dealers ("brokers") to effect the Fund's portfolio transactions in
securities and futures contracts. In doing so, the Manager is
authorized by the sub-advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at
reasonable expense, the "best execution" (prompt and reliable
execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission
bidding but is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent
consistent with the interest and policies of the Fund as
established by its Board of Trustees. Purchases of securities from
underwriters include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers include a spread
between the bid and asked price.
Under the sub-advisory agreement, the Manager is authorized to
select brokers that provide brokerage and/or research services for
the Fund and/or the other accounts over which the Manager or its
affiliates have investment discretion. The commissions paid to
such brokers may be higher than another qualified broker would have
charged if a good faith determination is made by the Manager that
the commission is fair and reasonable in relation to the services
provided. Subject to the foregoing considerations, the Manager may
also consider sales of shares of the Fund and other investment
companies managed by the Manager or their affiliates as a factor in
the selection of brokers for the Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager.
Subject to the provisions of the sub-advisory agreement, and the
procedures and rules described above, allocations of brokerage are
generally made by the Manager's portfolio traders based upon
recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the sub-
advisory agreement and the procedures and rules described above.
In either case, brokerage is allocated under the supervision of the
Manager's executive officers. Transactions in securities other
than those for which an exchange is the primary market are
generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed
securities and futures or for certain fixed-income agency
transactions in the secondary market and are otherwise paid only if
it appears likely that a better price or execution can be obtained.
When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any
transaction in the securities or futures contract to which the
option relates. When possible, concurrent orders to purchase or
sell the same security or futures contract by more than one of the
accounts managed by the Manager or its affiliates are combined.
The transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase
or sale orders actually placed for each account.
Most purchases of money market instruments and debt
obligations are principal transactions at net prices. Instead of
using a broker for those transactions, the Fund normally deals
directly with the selling or purchasing principal or market maker
unless it determines that a better price or execution can be
obtained by using a broker. Purchases of these securities from
underwriters include a commission or concession paid by the issuer
to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price. Options
commissions may be relatively higher than those which would apply
to direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of OFI, the
Manager or their affiliates, and investment research received for
the commissions of those other accounts may be useful both to the
Fund and one or more of such other accounts. Such research, which
may be supplied by a third party at the instance of a broker,
includes information and analyses on particular companies and
industries as well as market or economic trends and portfolio
strategy, receipt of market quotations for portfolio evaluations,
information systems, computer hardware and similar products and
services. If a research service also assists the Advisor or the
Manager in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component
that provides assistance to the Advisor or the Manager in the
investment decision-making process may be paid in commission
dollars. The Board of Trustees has permitted the Advisor and the
Manager to use concessions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency
transactions. The Board has also permitted the Advisor and the
Manager to use stated commissions on secondary fixed-income agency
trades to obtain research where the broker has represented to the
Advisor or the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker
on an agency basis at the stated commission, and (iii) the trade is
not a riskless principal transaction.
The research services provided by brokers broadens the scope
and supplements the research activities of the Advisor and the
Manager, by making available additional views for consideration and
comparisons, and by enabling the Advisor and the Manager to obtain
market information for the valuation of securities held in the
Fund's portfolio or being considered for purchase.
Performance of the Fund
Yield and Total Return Information. As described in the
Prospectus, from time to time the "standardized yield," "dividend
yield," "average annual total return," "cumulative total return,"
"average annual total return at net asset value" and "cumulative
total return at net asset value" of an investment in a class of
shares of the Fund may be advertised. An explanation of how these
total returns are calculated for each class and the components of
those calculations is set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include
the average annual total returns for each class of shares of the
Fund for the 1, 5, and 10-year periods (or the life of the class,
if less) ending as of the most recently-ended calendar quarter
prior to the publication of the advertisement. This enables an
investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for
comparison with other investments. An investment in the Fund is not
insured; its returns and share prices are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original
cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of each
class of shares of the Fund are affected by portfolio quality, the
type of investments the Fund holds and its operating expenses
allocated to the particular class.
Standardized Yields.
Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is
calculated using the following formula set forth in rules adopted
by the Securities and Exchange Commission that apply to all funds
(other than money market funds) that quote yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled
to receive dividends.
d = the maximum offering price per share of that class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day
period may differ from its yield for any other period. The SEC
formula assumes that the standardized yield for a 30-day period
occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This standardized yield is not
based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net
investment income from the Fund's portfolio investments calculated
for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally,
because each class of shares is subject to different expenses, it
is likely that the standardized yields of the Fund's classes of
shares will differ.
Dividend Yield and Distribution Return. From time to time
the Fund may quote a "dividend yield" or a "distribution return"
for each class. Dividend yield is based on the dividends paid on
shares of a class from dividends derived from net investment income
during a stated period. Distribution return includes dividends
derived from net investment income and from realized capital gains
declared during a stated period. Under those calculations, the
dividends and/or distributions for that class declared during a
stated period of one year or less (for example, 30 days) are added
together, and the sum is divided by the maximum offering price per
share of that class on the last day of the period. When the result
is annualized for a period of less than one year, the "dividend
yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the
maximum front-end sales charge. For Class B or Class C shares, the
maximum offering price is the net asset value per share without
considering the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its respective maximum offering price) at the end of
the period. The primary investment objective of the Fund is total
return. Therefore, the dividend yield, if any, is expected to be
small. Dividends, if any, will be distributed annually.
Total Return Information.
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") to achieve an Ending Redeemable Value ("ERV")
of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical
investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total
return but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 5.75% (as a percentage of the offering
price) is deducted from the initial investment ("P") (unless the
return is shown at net asset value, as described below). For Class
B shares, payment of a contingent deferred sales charge (5.0% for
the first year, 4.0% for the second year, 3.0% for the third and
fourth years, 2.0% for the fifth year, and 1.0% for the sixth year,
and none thereafter) is applied, as described in the Prospectus.
For Class C shares, the payment of the 1.0% contingent deferred
sales charge is applied to the investment result for the one-year
period (or less). Class Y shares are not subject to a sales
charge. Total returns also assume that all dividends and capital
gains distributions during the period are reinvested to buy
additional shares, at net asset value per share, and that the
investment is redeemed at the end of the period.
Total Returns At Net Asset Value. From time to time the
Fund may also quote an average annual total return at net asset
value or a cumulative total return at net asset value for Class A,
Class B, Class C or Class Y shares. Each is based on the
difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of
shares (without considering front-end or contingent deferred sales
charges) and takes into consideration the reinvestment of dividends
and capital gains distributions.
Other Performance Comparisons. From time to time the Fund may
publish the ranking of its Class A, Class B, Class C or Class Y
shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-
recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies,
including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The
performance of the Fund is ranked against (i) all other funds, (ii)
all other miscellaneous fixed income funds, and (iii) all other
fixed-income funds, excluding money market funds. The Lipper
performance rankings are based on total returns that include the
reinvestment of capital gains distributions and income dividends
but do not take sales charges or taxes into consideration.
From time to time, the Fund may include in its advertisements
and sales literature performance information about the Fund cited
in other newspapers and periodicals, such as The New York Times,
which may include performance quotations from other sources,
including Lipper.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B, Class C or Class Y shares by
Morningstar, Inc., an independent mutual fund monitoring service.
Morningstar ranks mutual funds in broad investment categories
(domestic stock funds, international stock funds, taxable funds,
municipal bond funds and hybrid funds) based on risk-adjusted total
returns. The Fund is ranked among hybrid funds. Investment return
measures a fund's or class's one, three, five and ten-year average
annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after
considering the Fund's sales charges and expenses. Risk measures
a fund's or class's performance below 90-day U.S. Treasury bill
returns. Risk and investment return are combined to produce star
rankings reflecting performance relative to the average fund in a
fund's category. Five stars is the "highest" ranking (top 10%),
four stars is "above average" (next 22.5%), three stars is
"average" (next 35%), two stars is "below average" (next 22.5%) and
one star is "lowest" (bottom 10%). The current star ranking is the
fund's or class's 3-year ranking or its combined 3 and 5-year
ranking (weighted 60%/40%, respectively) or its combined 3, 5 and
10-year ranking (weighted 40%, 30% and 30%, respectively),
depending on the inception of the fund or class. Rankings are
subject to change monthly.
The Fund may also compare its performance to that of other
funds in its Morningstar Category. In addition to its star
rankings, Morningstar also categorizes and compares a fund's 3-year
performance on Morningstar's classification of the fund's
investments and investment style, rather than how a fund defines
its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable
bond) are each further subdivided into categories based on types of
investments and investment styles. Those comparison by Morningstar
are based on the same risk and return measurements as its star
rankings but do not consider the effect of sales charges.
The total return on an investment in the Fund's Class A, Class
B, Class C or Class Y shares may be compared with the performance
for the same period of one or more of the indices, including the
Goldman Sachs Commodity Index (GSCI). Whereas the Consumer Price
Index is generally considered to be a measure of inflation, the
GSCI is a commodity index which tracks the prices in five major
commodity markets: energy, agriculture, livestock, precious metals,
and industrial metals. The index is a total return index. Its
value is based on the total return of fully collateralized near-
term futures positions. The performance of the Fund's Class A,
Class B or Class C shares may also be compared in publications to
(i) the performance of various market indices or to other
investments for which reliable performance data is available, and
(ii) to averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
Total return information may be useful to investors in
reviewing the performance of the Fund's Class A, Class B or Class
C shares. However, when comparing total return of an investment in
Class A, Class B or Class C shares of the Fund, a number of factors
should be considered before using such information as a basis for
comparison with other investments. The total return through a
diversified portfolio of commodity-link instruments, securities,
futures contracts and other investments, is designed as an attempt
to outperform more traditional investments in debt and equity
securities when the value of these traditional securities is
declining due to adverse economic consequences.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager or Transfer Agent or the investor services
provided by them to shareholders of the Oppenheimer funds, other
than performance rankings of the Oppenheimer funds themselves.
Those ratings or rankings of shareholder/investor services by third
parties may compare the Oppenheimer funds' services to those of
other mutual fund families selected by the rating or ranking
services and may be based upon the opinions of the rating or
ranking service itself, based on its research or judgment, or based
upon surveys of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act pursuant to which the Fund
makes payments to the Distributor in connection with the
distribution and/or servicing of the shares of that class. Each
Plan has been approved as required by Rule 12b-1.
In addition, under the Plans, the Manager and the Distributor,
in their sole discretion, from time to time, may use their own
resources (which, in the case of the Manager, may include profits
from the advisory fee it receives from the Fund), to make payments
to brokers, dealers or other financial institutions (each is
referred to as a "Recipient" under the Plans) for distribution and
administrative services they perform. The Distributor and the
Manager may, in their sole discretion, increase or decrease the
amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of
Trustees and its Independent Trustees by a vote cast in person at
a meeting called for the purpose of voting on such continuance.
Any Plan may be terminated at any time by the vote of a majority of
the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the
outstanding shares of that class. None of the Plans may be amended
to increase materially the amount of payments to be made unless
such amendment is approved by shareholders of the class affected by
the amendment. In addition, because Class B shares automatically
convert into Class A shares after six years, the Fund is required
by a Securities and Exchange Commission rule to obtain the approval
of Class B as well as Class A shareholders for a proposed amendment
to the Class A Plan that would materially increase the amount to be
paid by Class A shareholders under the Class A Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by class.
All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at
least quarterly on the amount of all payments made pursuant to each
Plan, the purpose for which each payment was made and the identity
of each Recipient that received any such payment. The report for
the Class B and Class C Plan shall also include the distribution
costs for that quarter and such costs for previous fiscal years are
carried forward, as explained in the Prospectus and below. Those
reports, including the allocations on which they are based, will be
subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty. Each Plan further provides
that while it is in effect, the selection and nomination of those
Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This
does not prevent the involvement of others in such selection and
nomination if the final decision on any such selection or
nomination is approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in
any quarter if the aggregate net asset value of all Fund shares
held by the Recipient for itself and its customers did not exceed
a minimum amount, if any, that may be determined from time to time
by a majority of the Fund's Independent Trustees. Initially, the
Board of Trustees has set the fees at the maximum rate and set no
minimum amount.
Any unreimbursed expenses incurred by the Distributor with
respect to Class A shares for any fiscal year may not be recovered
in subsequent fiscal years. Payments received by the Distributor
under the Plan for Class A shares will not be used to pay any
interest expense, carrying charges, or other financial costs, or
allocation of overhead by the Distributor.
The Class B and Class C Plans allow the service fee payments
to be paid by the Distributor to Recipients in advance for the
first year such shares are outstanding, and thereafter on a
quarterly basis, as described in the Prospectus. The advance
payment is based on the net asset value of the shares sold. An
exchange of shares does not entitle the Recipient to an advance
service fee payment. In the event shares are redeemed during the
first year shares are outstanding, the Recipient will be obligated
to repay a pro rata portion of the advance payment to the
Distributor.
Although the Class B and the Class C Plans permit the
Distributor to retain both the asset-based sales charges and the
service fee, or to pay Recipients the service fee on a quarterly
basis, without payment in advance, the Distributor presently
intends to pay the service fee to Recipients in the manner
described above. A minimum holding period may be established from
time to time under the Class B Plan and the Class C Plan by the
Board. Initially, the Board has set no minimum holding period.
All payments under the Class B Plan and the Class C Plan are
subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. The Distributor
anticipates that it will take a number of years for it to recoup
(from the Fund's payments to the Distributor under the Class B or
Class C Plan and from contingent deferred sales charges collected
on redeemed Class B or Class C shares) the sales commissions paid
to authorized brokers or dealers.
Asset-based sales charge payments are designed to permit an
investor to purchase shares of the Fund without paying a front-end
sales load and at the same time permit the Distributor to
compensate Recipients in connection with the sale of Class B and
Class C shares of the Fund. The Distributor retains the asset-
based sales charge on Class B shares. As to Class C shares, the
Distributor retains the asset-based sales charge during the first
year shares are outstanding, and pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares
outstanding for a year or more. Under the Class B and Class C
Plans, the asset-based sales charge is paid to compensate the
Distributor for its services, described below, to the Fund.
Under the Class B and Class C Plans, the distribution
assistance and administrative support services rendered by the
Distributor in connection with the distribution of Class B and
Class C shares may include: (i) paying service fees and sales
commissions to any broker, dealer, bank or other person or entity
that sells and services the Fund's Class B or Class C shares, (ii)
paying compensation to and expenses of personnel of the Distributor
who support distribution of Class B or Class C shares by
Recipients, (iii) obtaining financing or providing such financing
from its own resources, or from an affiliate, for interest and
other borrowing costs of the Distributor's unreimbursed expenses
incurred in rendering distribution assistance for Class B or Class
C shares, and (iv) paying certain other distribution expenses.
About Your Account
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B, Class C and
Class Y Shares. The availability of three classes of shares to
individual investors permits an investor to choose the method of
purchasing shares that is more beneficial to the investor depending
on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors
should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B
and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any salesperson or other
person entitled to receive compensation for selling Fund shares may
receive different compensation with respect to one class of shares
than the other. The Distributor will generally not accept any
order of $500,000 or more of Class B shares or $1 million or more
of Class C shares, on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will
be more advantageous for that investor to purchase Class A shares
of the Fund instead. A fourth class of shares may be purchased
only by certain institutional investors at net asset value per
share (the "Class Y shares").
The four classes of shares each represent an interest in the
same portfolio investments of the Fund. However, each class has
different shareholder privileges and features. The net income
attributable to Class B and Class C shares and the dividends
payable on Class B and Class C shares will be reduced by
incremental expenses borne solely by that class, including the
asset-based sales charge to which Class B and Class C shares are
subject.
The conversion of Class B shares to Class A shares after six
years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel
or tax adviser, to the effect that the conversion of Class B shares
does not constitute a taxable event for the holder under Federal
income tax law. If such a revenue ruling or opinion is no longer
available, the automatic conversion feature may be suspended, in
which event no further conversions of Class B shares would occur
while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event
for the holder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends
and distributions of the Fund's Class A, Class B, Class C and Class
Y shares recognizes two types of expenses. General expenses that
do not pertain specifically to a class are allocated pro rata to
the shares of each class, based on the percentage of the net assets
of such class to the Fund's total assets, and then equally to each
outstanding share within a given class. Such general expenses
include (i) management fees, (ii) legal, bookkeeping and audit
fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other
materials for current shareholders, (iv) fees to Independent
Trustees, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and
brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to
a class are allocated equally to each outstanding share within that
class. Such expenses include (a) Distribution and Service Plan
fees, (b) incremental transfer and shareholder servicing agent fees
and expenses, (c) registration fees and (d) shareholder meeting
expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
None of the instructions described elsewhere in the Prospectus
or Statement of Additional Information for the purchase,
redemption, reinvestment, exchange, or transfer of shares of the
Fund, the selection of classes of shares, or the reinvestment of
dividends apply to Class Y shares. Clients of Class Y Sponsors
must request their Sponsor to effect all transactions in Class Y
shares on their behalf.
Determination of Net Asset Value Per Share. The net asset values
per share of Class A, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange (the "Exchange") on each day that the Exchange is open, by
dividing the value of the Fund's net assets attributable to that
class by the number of shares of that class that are outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's
most recent annual holiday schedule (which is subject to change)
states that it will close on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. It may also close on other days. Trading may
occur in debt securities and foreign securities when the Exchange
is closed (including weekends and holidays). Because the Fund's
net asset values will not be calculated on those days, the Fund's
net asset values per share of Class A, Class B, Class C and Class
Y shares may be significantly affected at times when shareholders
may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for
the valuation of the Fund's securities, generally as follows: (i)
equity securities traded on a U.S. securities exchange or on NASDAQ
for which last sale information is regularly reported are valued at
the last reported sale price on their primary exchange or NASDAQ
that day (or, in the absence of sales that day, at values based on
the last sales prices of the preceding trading day, or closing
"bid" prices that day); (ii) securities actively traded on a
foreign securities exchange are valued at the last sales price
available to the pricing service approved by the Fund's Board of
Trustees or to the Manager as reported by the principal exchange on
which the security is traded; (iii) unlisted foreign securities or
listed foreign securities not actively traded are valued as in (i)
above, if available, or at the mean between "bid" and "asked"
prices obtained from active market makers in the security on the
basis of reasonable inquiry; (iv) long-term debt securities having
a remaining maturity in excess of 60 days are valued at the mean
between the "bid" and "asked" prices determined by a portfolio
pricing service approved by the Fund's Board of Trustees or
obtained from active market makers in the security on the basis of
reasonable inquiry; (v) debt instruments having a maturity of more
than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a
remaining maturity of 60 days or less are valued at the mean
between the "bid" and "asked" prices determined by a pricing
service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (vi) money market-type debt securities having a maturity
of less than one year when issued that have a remaining maturity of
60 days or less are valued at cost, adjusted for amortization of
premiums and accretion of discounts; (vii) securities (including
restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures;
and (viii) securities traded on foreign exchanges are valued at the
closing or last sales prices reported on a principal exchange, or,
if none, at the mean between closing bid and asked prices and
reflect prevailing rates of exchange taken from the closing price
on the London foreign exchange market that day.
Trading in securities on European and Asian exchanges and
over-the-counter markets is normally completed before the close of
The New York Stock Exchange. Events affecting the values of
foreign securities traded in stock markets that occur between the
time their prices are determined and the close of the Exchange will
not be reflected in the Fund's calculation of net asset value
unless the Board of Trustees or the Manager, under procedures
established by the Board of Trustees, determines that the
particular event would materially affect the Fund's net asset
value, in which case an adjustment would be made. Foreign
currency, including forward contracts, will be valued at the
closing price in the London foreign exchange market that day as
provided by a reliable bank, dealer or pricing service. Foreign
securities priced in a foreign currency as well as foreign currency
reflect prevailing rates of exchange and have their value converted
to U.S. dollars at the closing price in the London foreign exchange
market as provided by a reliable bank, dealer or pricing service.
In the case of U.S. Government Securities, mortgage-backed
securities and corporate bonds, when last sale information is not
generally available, such pricing procedures may include "matrix"
comparisons to the prices for comparable instruments on the basis
of quality, yield, maturity, and other special factors involved.
The Fund's Board of Directors has authorized the Manager to employ
a pricing service to price U.S. Government Securities, mortgage-
backed securities, and foreign government and corporate bonds. The
Manager will monitor the accuracy of such pricing services by
comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
Puts, calls and Futures held by the Fund are valued at the
last sales price on the principal exchange on which they are
traded, or on NASDAQ as applicable, as determined by a pricing
service approved by the Board of Directors or by the Manager. If
there are no sales that day, in accordance with (i), above.
Forward currency contracts are valued at the closing price in the
London foreign exchange market as provided by a reliable bank,
dealer or pricing service. When the Fund writes an option, an
amount equal to the premium received by the Fund is included in the
Fund's Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section.
The deferred credit is marked-to-market to reflect the current
market value of the option. In determining the Fund's gain on
investments, if a call written by the Fund is exercised, the
proceeds are increased by the premium received. If a call or put
written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the
premium was more or less than the cost of the closing transaction.
If the Fund exercises a put it holds, the amount the Fund receives
on its sale of the underlying investment is reduced by the amount
of the premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House ("ACH") transfer to buy shares. Dividends
will begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 P.M.,
but may close earlier on certain days. If Federal Funds are
received after the close of the Exchange, the shares will be
purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received
by the Fund 3 days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in
purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and expenses realized by the Distributor, dealers and
brokers making such sales. No sales charge is imposed in certain
other circumstances described in the Prospectus because the
Distributor or dealer or broker incurs little or no selling
expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
sons- and daughters-in-law, siblings, a sibling's spouse and a
spouse's siblings.
The Oppenheimer Funds. The Oppenheimer funds are those
mutual funds for which the Distributor acts as the distributor or
the sub-distributor and include the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer International Bond Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer International Growth Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Developing Markets Fund
Oppenheimer Bond Fund for Growth
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals
Limited-Term New York Municipal Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A
shares of each of the Oppenheimer funds except Money Market Funds
(under certain circumstances described herein, redemption proceeds
of Money Market Fund shares may be subject to a contingent
deferred sales charge).
Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month
period (the "Letter of Intent period"), which may, at the
investor's request, include purchases made up to 90 days prior to
the date of the Letter. The Letter states the investor's intention
to make the aggregate amount of purchases of shares which, when
added to the investor's holdings of shares of those Funds, will
equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count
toward satisfying the amount of the Letter. A Letter enables an
investor to count the Class A and Class B shares purchased under
the Letter to obtain the reduced sales charge rate on purchases of
Class A shares of the Fund (and other Oppenheimer funds) that
applies under the Right of Accumulation to current purchases of
Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price (including the sales
charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within
the Letter of Intent period, when added to the value (at offering
price) of the investor's holdings of shares on the last day of that
period, do not equal or exceed the intended purchase amount, the
investor agrees to pay the additional amount of sales charge
applicable to such purchases, as set forth in "Terms of Escrow,"
below (as those terms may be amended from time to time). The
investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be
bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and
if such terms are amended, as they may be from time to time by the
Fund, that those amendments will apply automatically to existing
Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer
funds by OppenheimerFunds prototype 401(k) plans under a Letter of
Intent, the Transfer Agent will not hold shares in escrow. If the
intended purchase amount under the Letter entered into by an
OppenheimerFunds prototype 401(k) plan is not purchased by the plan
by the end of the Letter of Intent period, there will be no
adjustment of commissions paid to the broker-dealer or financial
institution of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of
Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the
account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual purchases. If
total eligible purchases during the Letter of Intent period exceed
the intended purchase amount and exceed the amount needed to
qualify for the next sales charge rate reduction set forth in the
applicable prospectus, the sales charges paid will be adjusted to
the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid
to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the
investor's account at the net asset value per share in effect on
the date of such purchase, promptly after the Distributor's receipt
thereof.
In determining the total amount of purchases made under a
Letter, shares redeemed by the investor prior to the termination of
the Letter of Intent period will be deducted. It is the
responsibility of the dealer of record and/or the investor to
advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of
such purchases must be made through the Distributor.
Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the
Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be
shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and
capital gains distributions on the escrowed shares will be credited
to the investor's account.
2. If the intended purchase amount specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent
period the total purchases pursuant to the Letter are less than the
intended purchase amount specified in the Letter, the investor must
remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of
sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge
adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is
not paid within twenty days after a request from the Distributor or
the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and
fractional shares remaining after such redemption will be released
from escrow. If a request is received to redeem escrowed shares
prior to the payment of such additional sales charge, the sales
charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably
constitutes and appoints the Transfer Agent as attorney-in-fact to
surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter)
include (a) Class A shares sold with a front-end sales charge or
subject to a Class A contingent deferred sales charge, (b) Class B
shares acquired subject to a contingent deferred sales charge, and
(c) Class A shares or Class B shares acquired in exchange for
either (i) Class A shares of one of the other Oppenheimer funds
that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled
"How to Exchange Shares," and the escrow will be transferred to
that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from
a bank account, a check (minimum $25) for the initial purchase must
accompany the application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "Shareholder Account
Rules and Policies," in the Prospectus. Asset Builder Plans also
enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four
other Oppenheimer funds. If you make payments from your bank
account to purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to
the investment dates selected in the Account Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply
to shares purchased by Asset Builder payments. An application
should be obtained from the Distributor, completed and returned,
and a prospectus of the selected fund(s) should be obtained from
the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may
be changed or the automatic investments may be terminated at any
time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after the Transfer Agent's
receipt of such instructions to implement them. The Fund reserves
the right to amend, suspend, or discontinue offering such plans at
any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders
for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the
net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount
of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the
Fund for the loss, the Distributor will do so. The Fund may
reimburse the Distributor for that amount by redeeming shares from
any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
How To Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and
conditions for redemptions set forth in the Prospectus.
Involuntary Redemptions. The Fund's Board of Trustees has
the right to cause the involuntary redemption of the shares held in
any account if the aggregate net asset value of those shares is
less than $200 or such lesser amount as the Board may fix. The
Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the shares
has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it
may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in
question (not less than 30 days), or the Board may set requirements
for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash.
However, the Board of Trustees of the Fund may determine that it
would be detrimental to the best interests of the remaining
shareholders of the Fund to make payment of a redemption order
wholly or partly in cash. In that case the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind"
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1
under the Investment Company Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day
period for any one shareholder. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage or other costs in
selling the securities for cash. The method of valuing securities
used to make redemptions in kind will be the same as the method the
Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation
will be made as of the time the redemption price is
determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of
(i) Class A shares that you purchased subject to an initial sales
charge, or (ii) Class B shares on which you paid a contingent
deferred sales charge when you redeemed them. This privilege does
not apply to Class C shares. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the
Transfer Agent receives the reinvestment order. The shareholder
must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares
were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a
capital loss on the redemption, some or all of the loss may not be
tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption
proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the
redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after
the date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of
transfer to the name of another person or entity (whether the
transfer occurs by absolute assignment, gift or bequest, not
involving, directly or indirectly, a public sale). The transferred
shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the
transferring shareholder. If less than all shares held in an
account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B and
Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions
from OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans,
401(k) plans, or pension or profit-sharing plans should be
addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the
Transfer Agent at its address listed in "How To Sell Shares" in the
Prospectus or on the back cover of this Statement of Additional
Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if
the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption
requirements. Participants other than self-employed persons
maintaining a plan account in their own name in OppenheimerFunds-
sponsored prototype pension or profit-sharing or 401(k) plans may
not directly redeem or exchange shares held for their account under
those plans. The employer or plan administrator must sign the
request. Distributions from pension and profit sharing plans are
subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the
Internal Revenue Code, and IRS Form W-4P (available from the
Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that
tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the
Distributor, the Trustee and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the
conditions of applicable tax laws and will not be responsible for
any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers. The repurchase price
per share will be the net asset value next computed after the
Distributor receives the order placed by the dealer or broker,
except that if the Distributor receives a repurchase order from a
dealer or broker after the close of The New York Stock Exchange on
a regular business day, it will be processed at that day's net
asset value if the order was received by the dealer or broker from
its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 P.M.). Ordinarily, for
accounts redeemed by a broker-dealer under this procedure, payment
will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption
documents in proper form, with the signature(s) of the registered
owners guaranteed on the redemption document as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning
shares of the Fund valued at $5,000 or more can authorize the
Transfer Agent to redeem shares (minimum $50) automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior
to the date requested by the shareholder for receipt of the
payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable
to all shareholders of record and sent to the address of record for
the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on
this basis. Payments are normally made by check, but shareholders
having AccountLink privileges (see "How To Buy Shares") may arrange
to have Automatic Withdrawal Plan payments transferred to the bank
account designated on the OppenheimerFunds New Account Application
or signature-guaranteed instructions. Shares are normally redeemed
pursuant to an Automatic Withdrawal Plan three business days prior
to the date you select in the Account Application. If a contingent
deferred sales charge applies to the redemption, the amount of the
check or payment will be reduced accordingly. The Fund cannot
guarantee receipt of a payment on the date requested and reserves
the right to amend, suspend or discontinue offering such plans at
any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make
regular additional Class A share purchases while participating in
an Automatic Withdrawal Plan. Class B and Class C shareholders
should not establish withdrawal plans, because of the imposition of
the contingent deferred sales charges on such withdrawals (except
where the Class B and Class C contingent deferred sales charges are
waived as described in the Prospectus under "Waivers of Class B and
Class C Sales Charges".
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below, as well as in the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically
apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a
sales charge will be redeemed first and shares acquired with
reinvested dividends and capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to
the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted.
Payments made under withdrawal plans should not be considered as a
yield or income on your investment. It may not be desirable to
purchase additional Class A shares while making automatic
withdrawals because of the sales charges that apply to purchases
when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent and the Fund
shall incur no liability to the Planholder for any action taken or
omitted by the Transfer Agent in good faith to administer the Plan.
Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Transfer Agent will credit all
such shares to the account of the Planholder on the records of the
Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan
application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans,
distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends on shares held in the account may be paid in cash or
reinvested.
Redemptions of shares needed to make withdrawal payments will
be made at the net asset value per share determined on the
redemption date. Checks or AccountLink transfer payments of the
proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment
(receipt of payment on the date selected cannot be guaranteed),
according to the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments
are to be sent may be changed at any time by the Planholder by
writing to the Transfer Agent. The Planholder should allow at
least two weeks' time in mailing such notification for the
requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice (in proper form
in accordance with the requirements of the then-current Prospectus
of the Fund) to redeem all, or any part of, the shares held under
the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at
any time by the Transfer Agent upon receiving directions to that
effect from the Fund. The Transfer Agent will also terminate a
Plan upon receipt of evidence satisfactory to it of the death or
legal incapacity of the Planholder. Upon termination of a Plan by
the Transfer Agent or the Fund, shares that have not been redeemed
from the account will be held in uncertificated form in the name of
the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt,
the Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to
continue payments. However, should such uncertificated shares
become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of the Oppenheimer funds that have a single class
without a class designation are deemed "Class A" shares for this
purpose. All of the Oppenheimer funds offer Class A Class B and
Class C shares except Oppenheimer Money Market Fund, Inc.,
Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund,
L.P., and Daily Cash Accumulation Fund, Inc., which only offer
Class A shares and Oppenheimer Main Street California Tax-Exempt
Fund, which only offers Class A and Class B shares (Class B and
Class C shares of Oppenheimer Cash Reserves are generally available
only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds sponsored 401(k) plans). A list
showing which funds offer which classes can be obtained by calling
the Distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net
asset value for shares of any Money Market Fund. Shares of any
Money Market Fund purchased without a sales charge may be exchanged
for shares of Oppenheimer funds offered with a sales charge upon
payment of the sales charge (or, if applicable, may be used to
purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge). However, shares of Oppenheimer Money
Market Fund, Inc., purchased with the redemption proceeds of shares
of other mutual funds (other than funds managed by the Manager or
its subsidiaries) redeemed within the 12 months prior to that
purchase may subsequently be exchanged for shares of other
Oppenheimer funds without being subject to an initial or contingent
deferred sales charge, whichever is applicable. To qualify for
that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased, and if
requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any
unit investment trust for which reinvestment arrangements have been
made with the Distributor may be exchanged at net asset value for
shares of any of the Oppenheimer funds.
No contingent deferred sales charge is imposed on exchanges of
shares of any class purchased subject to a contingent deferred
sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Oppenheimer funds purchased subject to a
Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of
the exchanged Class A shares, the Class A contingent deferred sales
charge is imposed on the redeemed shares (see "Class A Contingent
Deferred Sales Charge" in the Prospectus. The Class B contingent
deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial
purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial
purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B and Class C contingent
deferred sales charges will be followed in determining the order in
which the shares are exchanged. Shareholders should take into
account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the
subsequent redemption of remaining shares. Shareholders owning
shares of more than one class must specify whether they intend to
exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or
more accounts. The Fund may accept requests for exchanges of up to
50 accounts per day from representatives of authorized dealers that
qualify for this privilege. In connection with any exchange
request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In
those cases, only the shares available for exchange without
restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtain and acknowledge receipt of
a prospectus of, the fund to which the exchange is to be made. For
full or partial exchanges of an account made by telephone, any
special account features such as Asset Builder Plans, Automatic
Withdrawal Plans and retirement plan contributions will be switched
to the new account unless the Transfer Agent is instructed
otherwise. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations),
shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business
day the Transfer Agent receives an exchange request in proper form
(the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases
may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer
of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it
(for example, if the receipt of multiple exchange requests from a
dealer might require the disposition of portfolio securities at a
time or at a price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares
held of record at the time of the previous determination of net
asset value. Daily dividends on newly purchased shares will not be
declared or paid until such time as Federal Funds (funds credited
to a member bank's account at the Federal Reserve Bank) are
available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal
Funds on the next business day. Dividends will be declared on
shares repurchased by a dealer or broker for four business days
following the trade date (i.e., to and including the day prior to
settlement of the repurchase). If all shares in an account are
redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
However, the investment objective of the Fund is total return and
not income generation. Consequently, the amount of dividends
distributed by the Fund is expected to be small.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by
the Postal Service as undeliverable will be invested in shares of
Oppenheimer Money Market Fund, Inc., as promptly as possible after
the return of such checks to the Transfer Agent, to enable the
investor to earn a return on otherwise idle funds.
The amount of a class's distributions may vary from time to
time depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C Shares," above. Dividends are calculated in the
same manner, at the same time and on the same day for shares of
each class. However, dividends on Class B and Class C shares are
expected to be lower than dividends on Class A shares as a result
of the asset-based sales charges on Class B and Class C shares, and
Class B and Class C dividends will also differ in amount as a
consequence of any difference in net asset value between the
classes.
Tax Status of the Fund's Dividends and Distributions. The Federal
tax treatment of the Fund's dividends and capital gains
distributions is explained in the Prospectus under the caption
"Dividends, Capital Gains and Taxes." Special provisions of the
Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends
paid by the Fund which may qualify for the deduction is limited to
the aggregate amount of qualifying dividends that the Fund derives
from its portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be
eligible for the deduction on dividends paid on Fund shares held
for 45 days or less. To the extent the Fund's dividends are
derived from gross income from option premiums, interest income or
short-term gains from the sale of securities or dividends from
foreign corporations, those dividends will not qualify for the
deduction.
If the Fund qualifies as a "regulated investment company"
under the Internal Revenue Code, it will not be liable for Federal
income taxes on amounts paid by it as dividends and distributions.
The Fund expects to qualify in current and future years, but
reserves the right not to qualify. The Internal Revenue Code
contains a number of complex tests to determine whether the Fund
will qualify, and the Fund might not meet those tests in a
particular year. For example, if the Fund derives 30% or more of
its gross income from the sale of securities held less than three
months, it may fail to qualify (see "Tax Aspects of Covered Calls
and Hedging Instruments," above). If it does not qualify, the Fund
will be treated for tax purposes as an ordinary corporation and
will receive no tax deduction for payments of dividends and
distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year, the
Fund must distribute 98% of its taxable investment income earned
from January 1 through December 31 of that year and 98% of its
capital gains realized in the period from November 1 of the prior
year through October 31 of the current year, or else the Fund must
pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements,
the Fund's Board of Trustees and the Manager might determine in a
particular year that it would be in the best interest of
shareholders for the Fund not to make such distributions at the
required levels and to pay the excise tax on the undistributed
amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund
may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other
Oppenheimer funds listed in "Reduced Sales Charges," above, at net
asset value without sales charge. To elect this option, a
shareholder must notify the Transfer Agent in writing and either
have an existing account in the fund selected for reinvestment or
must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made
at the net asset value per share in effect at the close of business
on the payable date of the dividend or distribution. Dividends
and/or distributions from shares of other Oppenheimer funds may be
invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the
delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships with the
Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian.
It will be the practice of the Fund to deal with the Custodian in
a manner uninfluenced by any banking relationship the Custodian may
have with the Manager and its affiliates. The Fund's cash balances
with the Custodian in excess of $100,000 are not protected by
Federal deposit insurance. Such uninsured balances at times may be
substantial.
Independent Auditors. The independent auditors of the Fund audit
the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and certain
other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Oppenheimer Real Asset Fund:
We have audited the accompanying statement of assets and
liabilities of Oppenheimer Real Asset Fund as of January 15, 1997.
This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of
Oppenheimer Real Asset Fund as of January 15, 1997 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
January 16, 1997
<PAGE>
Oppenheimer Real Asset Fund
Statement of Assets and Liabilities
January 15, 1997
<TABLE>
<CAPTION>
ASSETS Composite Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C>
Cash $103,000
Deferred Organization Costs-Note 3 $ 0
Total Assets $103,000
LIABILITIES-Payable to OppenheimerFunds,
Inc. (OFI)-Note 3 $ 0
Net Assets $103,000
NET ASSETS- Applicable to 10,000 Class
A shares,100 Class B shares, 100 Class
C shares, and 100 Class Y shares of
beneficial interest outstanding. $103,000 $100,000 $1,000 $1,000 $1,000
NET ASSET VALUE PER SHARE (net assets
divided by 10,000,100 and 100 shares
of beneficial interest for Class A,
Class B, Class C and Class Y respectively) $10.00 $10.00 $10.00 $10.00
MAXIMUM OFFERING PRICE PER SHARE (net
asset value plus sales charge of 5.75%
of offering price for Class A shares) $10.61 $10.00
</TABLE>
Notes:
1. Oppenheimer Real Asset Fund (the "Fund"), a diversified, open-
end management investment company, was formed on July 22,
1996, and has had no operations through January 15, 1997 other
than those relating to organizational matters and the sale and
issuance of 10,000 Class A shares, 100 Class B, 100 Class C,
and 100 Class Y shares of beneficial interest to
OppenheimerFunds, Inc. (OFI).
2. On August 27, 1996, the Fund's Board approved an Investment
Advisory Agreement with OFI, a Service Plan and Agreement for
Class A shares and Service and Distribution Plans and
Agreements for Class B, Class C and Class Y shares of the Fund
with OppenheimerFunds Distributor, Inc. (OFDI) and a General
Distributor's Agreement wit OFDI as explained in the Fund's
Prospectus and Statement of Additional Information.
3. OFI will advance all organizational and start-up costs of the
Fund. Such expenses will be capitalized and amortized over a
five-year period from the date operations commence. On the
first day that total assets exceed $5 million, the Fund will
reimburse OFI for all start-up expenses. In the event that
all or part of OFI's initial investment in shares of the Fund
is withdrawn during the amortization period, by any holder
thereof, the redemption proceeds will be reduced by the
proportionate amount of the unamortized organization costs
represented by the ratio that the number of shares redeemed
bears to the number of initial shares outstanding at the time
of such redemption.
4. The Fund intends to comply in its initial fiscal year and
thereafter with provisions of the internal Revenue Code
applicable to regulated investment companies and as such, will
not be subject to federal income taxes on otherwise taxable
income (including net realized capital gains) distributed to
shareholders.
<PAGE>
Appendix A
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Transmission*
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
_______________
* For purposes of the Fund's investment policy not to concentrate
in securities of issuers in the same industry, gas utilities and
gas transmission utilities each will be considered a separate
industry.
<PAGE>
Investment Adviser
Oppenheimer Real Asset Management, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER REAL ASSET FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements:
(1) Financial Highlights (See Part A): To be filed by
amendment.
(2) Report of Independent Auditors (See Part B): Filed
herewith.
(3) Statement of Investments (See Part B): To be filed
by amendment.
(4) Statement of Assets and Liabilities (See Part B):
Filed herewith.
(5) Statement of Operations: To be filed by amendment.
(6) Statement of Changes in Net Asset Value: To be filed
by amendment.
(7) Notes to Financial Statements: To be filed by
amendment.
(b) Exhibits:
(1) Registrant's Declaration of Trust dated 7/22/96:
Filed with Registrant's Initial Registration Statement (Reg. No.
333-14887), 10/15/96, and incorporated herein by reference.
(2) By-Laws dated 7/22/96: Filed with Registrant's
Initial Registration Statement (Reg. No. 333-14887), 10/15/96, and
incorporated herein by reference.
(3) Not applicable.
(4) (i) Specimen Class A Share Certificate: Filed with
Registrant's Initial Registration Statement (Reg. No. 333-14887),
10/15/96, and incorporated herein by reference.
(ii) Specimen Class B Share Certificate: Filed with
Registrant's Initial Registration Statement (Reg. No. 333-14887),
10/15/96, and incorporated herein by reference.
(iii) Specimen Class C Share Certificate: Filed
with Registrant's Initial Registration Statement (Reg. No. 333-
14887), 10/15/96, and incorporated herein by reference.
(iv) Specimen Class Y Share Certificate: Filed with
Registrant's Initial Registration Statement (Reg. No. 333-14887),
10/15/96, and incorporated herein by reference.
(5) (i) Form of Investment Advisory Agreement: Filed
with Registrant's Initial Registration Statement (Reg. No. 333-
14887), 10/15/96, and incorporated herein by reference.
(ii) Form of Revised Sub-Advisory Agreement: Filed
herewith.
(6) (i) Form of General Distributor's Agreement: Filed
with Registrant's Initial Registration Statement (Reg. No. 333-
14887), 10/15/96, and incorporated herein by reference.
(ii) Form of OppenheimerFunds Distributor, Inc.
Dealer Agreement: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94,
and incorporated herein by reference.
(iii) Form of OppenheimerFunds Distributor, Inc.
Broker Agreement: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94,
and incorporated herein by reference.
(iv) Form of OppenheimerFunds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94,
and incorporated herein by reference.
(v) Broker Agreement between OppenheimerFunds
Distributor, Inc. and Newbridge Securities, Inc. dated October 1,
1986: Previously filed with Post-Effective Amendment No. 25 to the
Registration Statement of Oppenheimer Growth Fund (Reg. No. 2-
45272), 11/1/86, and refiled with Post-Effective Amendment No. 45
of Oppenheimer Growth Fund (Reg. No. 2-45272), 8/22/94 pursuant to
Item 102 of Regulation S-T and incorporated herein by reference.
(7) Not applicable.
(8) Form of Custodian Agreement between Registrant and
The Bank of New York: Filed with Registrant's Initial Registration
Statement (Reg. No. 333-14887), 10/15/96, and incorporated herein
by reference.
(9) Not applicable.
(10) Opinion and Consent of Counsel: To be filed by
amendment.
(11) Independent Auditors' Consent: Filed herewith.
(12) Not applicable.
(13) Investment Letter from OppenheimerFunds, Inc.: Filed
herewith.
(14) (i) Form of prototype Standardized and Non-
Standardized Profit-Sharing Plans and Money Purchase Plans for
self-employed persons and corporations: Filed with Post-Effective
Amendment No. 3 to the Registration Statement of Oppenheimer Global
Growth & Income Fund (Reg. No. 33-23799), 1/31/92, and refiled with
Post-Effective Amendment No. 7 to the Registration Statement of
Oppenheimer Global Growth & Income Fund (Reg. No. 33-23799),
12/1/94, pursuant to Item 102 of Regulation S-T, and incorporated
herein by reference.
(ii) Form of Individual Retirement Account Trust
Agreement: Previously filed with Post-Effective Amendment No. 21 to
the Registration Statement of Oppenheimer U.S. Government Trust
(Reg. No. 2-76645), 8/25/93 and incorporated herein by reference.
(iii) Form of Tax Sheltered Retirement Plan and
Custody Agreement for employees of public schools and tax-exempt
organizations: Previously filed with Post-Effective Amendment No.
47 to the Registration Statement of Oppenheimer Growth Fund (Reg.
No. 2-45272), 10/21/94, and incorporated herein by reference.
(iv) Form of Simplified Employee Pension IRA:
Previously filed with Post-Effective Amendment No. 42 to the
Registration Statement of Oppenheimer Equity Income Fund (Reg. No.
2-33043), 10/28/94, and incorporated herein by reference.
(v) Form of Prototype 401(k) Plan: Previously
filed with Post-Effective Amendment No. 7 to the Registration
Statement of Oppenheimer Strategic Income & Growth Fund (Reg. No.
33-47378), 9/28/95, and incorporated herein by reference.
(15) (i) Form of Service Plan and Agreement for Class A
shares under Rule 12b-1: Filed with Registrant's Initial
Registration Statement (Reg. No. 333-14887), 10/15/96, and
incorporated herein by reference.
(ii) Form of Distribution and Service Plan and
Agreement for Class B shares under Rule 12b-1: Filed with
Registrant's Initial Registration Statement (Reg. No. 333-14887),
10/15/96, and incorporated herein by reference.
(iii) Form of Distribution and Service Plan and
Agreement for Class C shares under Rule 12b-1: Filed with
Registrant's Initial Registration Statement (Reg. No. 333-14887),
10/15/96, and incorporated herein by reference.
(16) Performance Data Computation Schedule: Not
applicable.
(17) (i) Financial Data Schedule for Class A shares: Not
applicable.
(ii) Financial Data Schedule for Class B shares:
Not applicable.
(iii) Financial Data Schedule for Class C shares:
Not applicable.
(iv) Financial Data Schedule for Class Y shares:
Not applicable.
(18) Oppenheimer Funds Multiple Class Plan under Rule
18f-3 dated 10/24/95: Previously filed with Post-Effective
Amendment No. 12 to the Registration Statement of Oppenheimer
California Tax-Exempt Fund (Reg. No. 33-23566), 11/1/95, and
incorporated herein by reference.
-- Powers of Attorney.
Item 25. Persons Controlled by or Under Common Control with
Registrant
- -------- --------------------------------------------------------
None
Item 26. Number of Holders of Securities
- -------- -------------------------------
Number of
Record Holders
Title of Class as of January 15, 1997
-------------- ------------------------
Class A Shares of Beneficial Interest 0
Class B Shares of Beneficial Interest 0
Class C Shares of Beneficial Interest 0
Item 27. Indemnification
- -------- ---------------
Reference is made to the provisions of Article Seventh of
Registrant's Declaration of Trust filed as Exhibit 24(b)(1) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid
by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such trustee, officer or controlling person, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
(a) OppenheimerFunds, Inc. is the investment adviser of the
Registrant; it and certain subsidiaries and affiliates act in the
same capacity to other registered investment companies as described
in Parts A and B hereof and listed in Item 28(b) below.
(b) There is set forth below information as to any other
business, profession, vocation or employment of a substantial
nature in which each officer and director of OppenheimerFunds, Inc.
is, or at any time during the past two fiscal years has been,
engaged for his/her own account or in the capacity of director,
officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Name & Current Position Other Business and Connections
with OppenheimerFunds, Inc. During the Past Two Years
- --------------------------- ------------------------------
<S> <C>
Mark J.P. Anson,
Vice President Vice President of Oppenheimer Real Asset
Management, Inc. ("ORAMI"); formerly Vice
President of Equity Derivatives at Salomon
Brothers, Inc.
Peter M. Antos,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; a Chartered
Financial Analyst; Senior Vice President
of HarbourView; prior to March, 1996 he
was the senior equity portfolio manager
for the Panorama Series Fund, Inc. (the
"Company") and other mutual funds and
pension funds managed by G.R. Phelps & Co.
Inc. ("G.R. Phelps"), the Company's former
investment adviser, which was a subsidiary
of Connecticut Mutual Life Insurance
Company; was also responsible for managing
the common stock department and common
stock investments of Connecticut Mutual
Life Insurance Co.
Lawrence Apolito,
Vice President None.
Victor Babin,
Senior Vice President None.
Bruce Bartlett,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; formerly a Vice
President and Senior Portfolio Manager at
First of America Investment Corp.
Ellen Batt,
Assistant Vice President None
Kathleen Beichert,
Assistant Vice President Formerly employed by Smith Barney, Inc.
David Bernard,
Vice President Previously a Regional Sales Director for
Retirement Plan Services at Charles Schwab
& Co., Inc.
Robert J. Bishop,
Vice President Assistant Treasurer of the Oppenheimer
Funds (listed below); previously a Fund
Controller for OppenheimerFunds, Inc. (the
"Manager").
George Bowen,
Senior Vice President &
Treasurer Treasurer of the New York-based
Oppenheimer Funds; Vice President,
Assistant Secretary and Treasurer of the
Denver-based Oppenheimer Funds. Vice
President and Treasurer of
OppenheimerFunds Distributor, Inc. (the
"Distributor") and HarbourView Asset
Management Corporation ("HarbourView"), an
investment adviser subsidiary of the
Manager; Senior Vice President, Treasurer,
Assistant Secretary and a director of
Centennial Asset Management Corporation
("Centennial"), an investment adviser
subsidiary of the Manager; Vice President,
Treasurer and Secretary of Shareholder
Services, Inc. ("SSI") and Shareholder
Financial Services, Inc. ("SFSI"),
transfer agent subsidiaries of the
Manager; Director, Treasurer and Chief
Executive Officer of MultiSource Services,
Inc.; Vice President and Treasurer of
Oppenheimer Real Asset Management, Inc.;
President, Treasurer and Director of
Centennial Capital Corporation; Vice
President and Treasurer of Main Street
Advisers.
Scott Brooks,
Assistant Vice President None.
Susan Burton,
Assistant Vice President Previously a Director of Educational
Services for H.D. Vest Investment
Securities, Inc.
Michael A. Carbuto,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of Centennial.
Ruxandra Chivu,
Assistant Vice President None.
O. Leonard Darling,
Executive Vice President Formerly Co-Director of Fixed Income for
State Street Research & Management Co.
Robert A. Densen,
Senior Vice President None.
Robert Doll, Jr.,
Executive Vice President &
Director An officer and/or portfolio manager of
certain Oppenheimer funds.
John Doney,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Andrew J. Donohue,
Executive Vice President,
General Counsel & Director Secretary of the New York-based Oppenheimer
Funds; Vice President and Secretary of the
Denver-based Oppenheimer Funds; Secretary
of the Oppenheimer Quest and Oppenheimer
Rochester Funds; Executive Vice President,
Director and General Counsel of the
Distributor; President and a Director of
Centennial; Chief Legal Officer and a
Director of MultiSource Services, Inc.;
President and a Director of Oppenheimer
Real Asset Management, Inc.; Executive
Vice President, General Counsel and
Director of SFSI and SSI; formerly Senior
Vice President and Associate General
Counsel of the Manager and the
Distributor.
George Evans,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Scott Farrar,
Vice President Assistant Treasurer of the New York-based
and Denver-based Oppenheimer funds.
Katherine P. Feld,
Vice President & Secretary Vice President and Secretary of
OppenheimerFunds Distributor, Inc.;
Secretary of HarbourView Asset Management
Corporation, MultiSource Services, Inc.
and Centennial Asset Management
Corporation; Secretary, Vice President and
Director of Centennial Capital
Corporation; Vice President and Secretary
of ORAMI.
Ronald H. Fielding,
Senior Vice President;
Chairman: Rochester Division An officer, Director and/or portfolio
manager of certain Oppenheimer funds.
Formerly Chairman of the Board and
Director of Rochester Fund Distributors,
Inc. ("RFD"), President and Director of
Fielding Management Company, Inc. ("FMC"),
President and Director of Rochester
Capital Advisors, Inc. ("RCAI"), Managing
Partner of Rochester Capital Advisors,
L.P., President and Director of Rochester
Fund Services, Inc. ("RFS"), President and
Director of Rochester Tax Managed Fund,
Inc.
John Fortuna,
Vice President None.
Patricia Foster,
Vice President Formerly she held the following positions:
An officer of certain Oppenheimer funds;
Secretary and General Counsel of Rochester
Capital Advisors, L.P. and Secretary of
Rochester Tax Managed Fund, Inc.
Robert G. Galli,
Vice Chairman Trustee of the New York-based Oppenheimer
Funds; Vice President and Counsel of OAC;
formerly he held the following positions:
Vice President and a director of
HarbourView and Centennial, a director of
SFSI and SSI, an officer of other
Oppenheimer Funds.
Linda Gardner,
Assistant Vice President None.
Janelle Gellermann,
Assistant Vice President None.
Jill Glazerman, None.
Assistant Vice President
Ginger Gonzalez,
Vice President, Director of
Marketing Communications Formerly 1st Vice President / Director of
Graphic and Print Communications for
Shearson Lehman Brothers.
Mildred Gottlieb,
Assistant Vice President Formerly served as a Strategy Consultant
for the Private Client Division of Merrill
Lynch.
Caryn Halbrecht,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; formerly Vice
President of Fixed Income Portfolio
Management at Bankers Trust.
Barbara Hennigar,
Executive Vice President &
President and Chief Executive
Officer of OppenheimerFunds
Services, a division of the
Manager President and Director of SFSI; President
and Chief Executive Officer of SSI.
Dorothy Hirshman,
Assistant Vice President None.
Alan Hoden,
Vice President None.
Merryl Hoffman,
Vice President None.
Scott T. Huebl,
Assistant Vice President None.
Richard Hymes,
Assistant Vice President None.
Jane Ingalls,
Assistant Vice President Formerly a Senior Associate with Robinson,
Lake/Sawyer Miller.
Ronald Jamison,
Vice President Formerly Vice President and Associate
General Counsel at
Prudential Securities, Inc.
Frank Jennings,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly a
Managing Director of Global Equities at
Paine Webber's Mitchell Hutchins division.
Heidi Kagan,
Assistant Vice President None.
Thomas W. Keffer,
Vice President Formerly Senior Managing Director of Van
Eck Global.
Avram Kornberg,
Vice President Formerly a Vice President with Bankers
Trust.
Paul LaRocco,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly a
Securities Analyst for Columbus Circle
Investors.
Michael Levine,
Assistant Vice President None.
Stephen F. Libera,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; a Chartered
Financial Analyst; a Vice President of
HarbourView; prior to March, 1996 he was
the senior bond portfolio manager for
Panorama Series Fund, Inc., other mutual
funds and pension accounts managed by G.R.
Phelps; was also responsible for managing
the public fixed-income securities
department at Connecticut Mutual Life
Insurance Co.
Mitchell J. Lindauer,
Vice President None.
Loretta McCarthy,
Executive Vice President None.
Bridget Macaskill,
President, Chief Executive
Officer and Director President, Director and Trustee of the New
York-based and the Denver-based
Oppenheimer funds; President and a
Director of OAC, HarbourView and
Oppenheimer Partnership Holdings, Inc.;
Director of ORAMI; Chairman and Director
of SSI; a Director of Oppenheimer Real
Asset Management, Inc.
Timothy Martin,
Assistant Vice President Formerly Vice President, Mortgage Trading,
at S.N. Phelps & Co., Salomon Brothers,
and Kidder Peabody.
Sally Marzouk,
Vice President None.
Lisa Migan,
Assistant Vice President, None.
Robert J. Milnamow,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly a
Portfolio Manager with Phoenix Securities
Group.
Denis R. Molleur,
Vice President None.
Kenneth Nadler,
Vice President None.
David Negri,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Barbara Niederbrach,
Assistant Vice President None.
Robert A. Nowaczyk,
Vice President None.
Robert E. Patterson,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
John Pirie,
Assistant Vice President Formerly a Vice President with Cohane
Rafferty Securities, Inc.
Tilghman G. Pitts III,
Executive Vice President Chairman and Director of the Distributor.
Jane Putnam,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly Senior
Investment Officer and Portfolio Manager
with Chemical Bank.
Russell Read,
Vice President Consultant for Prudential Insurance on
behalf of the General Motors Pension Plan.
Thomas Reedy,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly a
Securities Analyst for the Manager.
David Robertson,
Vice President None.
Adam Rochlin,
Vice President Formerly a Product Manager for
Metropolitan Life Insurance Company.
Michael S. Rosen
Vice President; President:
Rochester Division An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly Vice
President of RFS, President and Director
of RFD, Vice President and Director of
FMC, Vice President and director of RCAI,
General Partner of RCA, an officer and/or
portfolio manager of certain Oppenheimer
funds.
David Rosenberg,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Richard H. Rubinstein,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; formerly Vice
President and Portfolio Manager/Security
Analyst for Oppenheimer Capital Corp., an
investment adviser.
Lawrence Rudnick,
Assistant Vice President Formerly Vice President of Dollar Dry Dock
Bank.
James Ruff,
Executive Vice President None.
Ellen Schoenfeld,
Assistant Vice President None.
Stephanie Seminara,
Vice President Formerly Vice President of Citicorp
Investment Services.
Diane Sobin,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; formerly a Vice
President and Senior Portfolio Manager for
Dean Witter InterCapital, Inc.
Richard A. Soper, None.
Assistant Vice President
Nancy Sperte,
Executive Vice President None.
Donald W. Spiro,
Chairman Emeritus Vice Chairman and Trustee of the New York-
based Oppenheimer Funds; formerly Chairman
of the Manager and the Distributor.
Arthur Steinmetz,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Ralph Stellmacher,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
John Stoma,
Senior Vice President,
Director Retirement Plans Formerly Vice President of U.S. Group
Pension Strategy and Marketing for
Manulife Financial.
Michael C. Strathearn,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; a Chartered
Financial Analyst; a Vice President of
HarbourView; prior to March, 1996 he was
an equity portfolio manager for Panorama
Series Fund, Inc. and other mutual funds
and pension accounts managed by G.R.
Phelps.
James C. Swain,
Vice Chairman of the Board Chairman, CEO and Trustee, Director or
Managing Partner of the Denver-based
Oppenheimer Funds; President and a
Director of Centennial; formerly President
and Director of OAMC, and Chairman of the
Board of SSI.
James Tobin,
Vice President None.
Jay Tracey,
Vice President Vice President of the Manager; Vice
President and Portfolio Manager of
Oppenheimer Discovery Fund, Oppenheimer
Global Emerging Growth Fund and
Oppenheimer Enterprise Fund. Formerly
Managing Director of Buckingham Capital
Management.
Gary Tyc,
Vice President, Assistant
Secretary and Assistant
Treasurer Assistant Treasurer of the Distributor and
SFSI.
Ashwin Vasan,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Valerie Victorson,
Vice President None.
Dorothy Warmack,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds.
Jerry A. Webman,
Senior Vice President Director of New York-based tax-exempt
fixed income Oppenheimer Funds; Formerly
Managing Director and Chief Fixed Income
Strategist at Prudential Mutual Funds.
Christine Wells,
Vice President None.
Kenneth B. White,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; a Chartered
Financial Analyst; Vice President of
HarbourView; prior to March, 1996 he was
an equity portfolio manager for Panorama
Series Fund, Inc. and other mutual funds
and pension funds managed by G.R. Phelps.
William L. Wilby,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of HarbourView.
Carol Wolf,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of Centennial; Vice President, Finance and
Accounting and member of the Board of
Directors of the Junior League of Denver,
Inc.
Robert G. Zack,
Senior Vice President and
Assistant Secretary Associate General Counsel of the Manager;
Assistant Secretary of the Oppenheimer
Funds; Assistant Secretary of SSI, SFSI;
an officer of other Oppenheimer Funds.
Arthur J. Zimmer,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of Centennial.
</TABLE>
The Oppenheimer Funds include the New York-based Oppenheimer
Funds, the Denver-based Oppenheimer Funds, and the Quest/Rochester
Funds, set forth below:
New York-based Oppenheimer Funds
- --------------------------------
Oppenheimer Multiple Strategies Fund
Oppenheimer California Municipal Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer International Growth Fund
Oppenheimer Money Market Fund, Inc.
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Municipal Trust
Oppenheimer New York Municipal Fund
Oppenheimer Fund
Oppenheimer Series Fund, Inc.
Oppenheimer Municipal Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer World Bond Fund
Denver-based Oppenheimer Funds
- ------------------------------
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Champion Income Fund
Oppenheimer Equity Income Fund
Oppenheimer High Yield Fund
Oppenheimer Integrity Funds
Oppenheimer International Bond Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Municipal Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Variable Account Funds
Panorama Series Fund, Inc.
The New York Tax-Exempt Income Fund, Inc.
Quest/Rochester Funds
- ---------------------------------
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest for Value Funds
Bond Fund Series - Oppenheimer Bond Fund For Growth
Rochester Fund Municipals
Rochester Portfolio Series - Limited Term New York Municipal Fund
The address of OppenheimerFunds, Inc., the New York-based
Oppenheimer Funds, Quest funds, OppenheimerFunds Distributor, Inc.,
HarbourView Asset Management Corp., Oppenheimer Partnership
Holdings, Inc., and Oppenheimer Acquisition Corp. is Two World
Trade Center, New York, New York 10048-0203.
The address of the Denver-based Oppenheimer Funds, Shareholder
Financial Services, Inc., Shareholder Services, Inc.,
OppenheimerFunds Services, Centennial Asset Management Corporation,
Centennial Capital Corp., and Oppenheimer Real Asset Management,
Inc. is 6803 South Tucson Way, Englewood, Colorado 80112.
The address of MultiSource Services, Inc. is 1700 Lincoln
Street, Denver, Colorado 80203.
The address of is Bond Fund Series - Oppenheimer Bond Fund For
Growth, Rochester Fund Municipals and Rochester Portfolio Series -
Limited Term New York Municipal Fund 350 Linden Oaks, Rochester,
New York 14625-2807.
Item 29. Principal Underwriter
- -------- ---------------------
(a) OppenheimerFunds Distributor, Inc. is the Distributor of
Registrant's shares. It is also the Distributor of each of the
other registered open-end investment companies for which
OppenheimerFunds, Inc. is the investment adviser, as described in
Part A and B of this Registration Statement and listed in Item
28(b) above.
(b) The directors and officers of the Registrant's principal
underwriter are:
<TABLE>
<CAPTION>
Positions and
Name & Principal Positions & Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ------------------- -------------
<S> <C> <C>
George Clarence Bowen+ Vice President & Treasurer Vice President and
Treasurer of the
NY-based
Oppenheimer funds
/ Vice President,
Secretary and
Treasurer of the
Denver-based
Oppenheimer funds
Julie Bowers Vice President None
21 Dreamwold Road
Scituate, MA 02066
Peter W. Brennan Vice President None
1940 Cotswold Drive
Orlando, FL 32825
Maryann Bruce* Senior Vice President - None
Director - Financial
Institution Div.
Robert Coli Vice President None
12 White Tail Lane
Bedminster, NJ 07921
Ronald T. Collins Vice President None
710-3 E. Ponce DeLeon Ave.
Decatur, GA 30030
Bill Coughlin Vice President None
3425-1/2 Irving Avenue So.
Minneapolis, MN 55408
Mary Crooks+ Senior Vice President None
E. Drew Devereaux ++ Assistant Vice President None
Andrew John Donohue* Executive Vice Secretary of the
President, General New York-based
Counsel and Director Oppenheimer funds
/ Vice President
of the Denver-
based Oppenheimer
funds
Wendy H. Ehrlich Vice President None
4 Craig Street
Jericho, NY 11753
Kent Elwell Vice President None
41 Craig Place
Cranford, NJ 07016
John Ewalt Vice President None
2301 Overview Dr. NE
Tacoma, WA 98422
Katherine P. Feld* Vice President & Secretary None
Mark Ferro Vice President None
43 Market Street
Breezy Point, NY 11697
Ronald H. Fielding++ Vice President; Chairman:
Rochester Division None
Reed F. Finley Vice President - None
320 E. Maple, Ste. 254 Financial Institution Div.
Birmingham, MI 48009
Wendy Fishler* Vice President - None
Financial Institution Div.
Ronald R. Foster Senior Vice President None
139 Avant Lane
Cincinatti, OH 45249
Patricia Gadecki Vice President None
3906 Americana Drive
Tampa, FL 3334
Luiggino Galletto Vice President None
10239 Rougemont Lane
Charlotte, NC 28277
Mark Giles Vice President - None
5506 Bryn Mawr Financial Institution Div.
Dallas, TX 75209
Ralph Grant* Vice President/National None
Sales Manager - Financial
Institution Div.
Sharon Hamilton Vice President None
720 N. Juanita Ave. - #1
Redondo Beach, CA 90277
Mark D. Johnson Vice President None
7512 Cromwell Dr. Apt 1
Clayton, MO 63105
Michael Keogh* Vice President None
Richard Klein Vice President None
4820 Fremont Avenue So.
Minneapolis, MN 55409
Ilene Kutno* Vice President - None
Director - Regional Sales
Wayne A. LeBlang Senior Vice President - None
23 Fox Trail Director Eastern Div.
Lincolnshire, IL 60069
Dawn Lind Vice President - None
7 Maize Court Financial Institution Div.
Melville, NY 11747
James Loehle Vice President None
30 John Street
Cranford, NJ 07016
John McDonough Vice President None
P.O. Box 760
50 Riverview Road
New Castle, NH 03854
Laura Mulhall* Senior Vice President - None
Director of Key Accounts
Timothy G. Mulligan ++ Vice President None
Charles Murray Vice President None
50 Deerwood Drive
Littleton, CO 80127
Wendy Murray Vice President None
114-B Larchmont Acres West
Larchmont, NY 10538
Joseph Norton Vice President None
2518 Fillmore Street
Apt. 1
San Francisco, CA 94115
Patrick Palmer Vice President None
958 Blue Mountain Cr.
West Lake Village, CA 91362
Randall Payne Vice President - None
1307 Wandering Way Dr. Financial Institution Div.
Charlotte, NC 28226
Gayle Pereira Vice President None
2707 Via Arboleda
San Clemente, CA 92672
Charles K. Pettit Vice President None
22 Fall Meadow Dr.
Pittsford, NY 14534
Bill Presutti Vice President None
1777 Larimer St. #807
Denver, CO 80202
Tilghman G. Pitts, III* Chairman & Director None
Elaine Puleo* Vice President - None
Financial Institution Div.,
Director -
Key Accounts
Minnie Ra Vice President - None
0895 Thirty-First Ave. Financial Institution Div.
Apt. 4
San Francisco, CA 94121
Michael Raso Vice President None
30 Hommocks Road
Apt. 30
Larchmont, NY 10538
John C. Reinhardt ++ Vice President None
Ian Robertson Vice President None
4204 Summit Way
Marietta, GA 30066
Michael S. Rosen++ Vice President, President:
Rochester Division None
Kenneth Rosenson Vice President None
3802 Knickerbocker Place
Apt. 3D
Indianapolis, IN 46240
James Ruff* President None
Timothy Schoeffler Vice President None
1717 Fox Hall Road
Wasington, DC 20007
Michael Sciortino Vice President None
3114 Hickory Run
Sugarland, TX 77479
Robert Shore Vice President - None
26 Baroness Lane Financial Institution Div.
Laguna Niguel, CA 92677
Peggy Spilker ++ Vice President None
Michael Stenger Vice President None
8572 Saint Ives Place
Cincinnati, OH 45255
George Sweeney Vice President None
1855 O'Hara Lane
Middletown, PA 17057
Scott McGregor Tatum Vice President None
7123 Cornelia Lane
Dallas, TX 75214
David G. Thomas Vice President - None
111 South Joliet Circle Financial Institution Div.
#304
Aurora, CO 80112
Philip Trimble Vice President None
2213 West Homer
Chicago, IL 60647
Gary Paul Tyc+ Assistant Treasurer None
Mark Stephen Vandehey+ Vice President None
* Two World Trade Center, New York, NY 10048-0203
+ 6803 South Tucson Way, Englewood, CO 80112
++ 350 Linden Oaks, Rochester, NY 14625-2807 (the "Rochester Division")
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated thereunder are
in the possession of Oppenheimer Real Asset Management, Inc. at its
offices at 3410 South Galena Street, Denver, Colorado 80231.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four
to six months from the effective date of its registration statement
under the Securities Act of 1933.
(c) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and/or the Investment Company Act of 1940, the Registrant has duly
caused this registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Denver
and State of Colorado on the 4th day of February, 1997.
OPPENHEIMER REAL ASSET FUND
By: /s/ James C. Swain*
_________________________
James C. Swain, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ James C. Swain* Chairman of the February 4, 1997
- ---------------------- Board of Trustees
James C. Swain
/s/ Bridget A. Macaskill President and February 4, 1997
- ------------------------ Trustee
Bridget A. Macaskill
/s/ George C. Bowen* Chief Financial February 4, 1997
- ---------------------- and Accounting
George C. Bowen Officer
/s/ Robert G. Avis* Trustee February 4, 1997
- ----------------------
Robert G. Avis
/s/ William A. Baker* Trustee February 4, 1997
- ----------------------
William A. Baker
/s/ Charles Conrad Jr.* Trustee February 4, 1997
- ----------------------
Charles Conrad, Jr.
/s/ Jon S. Fossel* Trustee February 4, 1997
- ----------------------
Jon S. Fossel
/s/ Sam Freedman Trustee February 4, 1997
- ----------------------
Sam Freedman
/s/ Raymond J. Kalinowski* Trustee February 4, 1997
- -------------------------
Raymond J. Kalinowski
/s/ Howard Kast* Trustee February 4, 1997
- ------------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee February 4, 1997
- ------------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee February 4, 1997
- ------------------------
Ned M. Steel
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
</TABLE>
<PAGE>
OPPENHEIMER REAL ASSET FUND
EXHIBIT INDEX
Form N-1A
Item No. Description
24(b)(5)(ii) Sub-Advisory Agreement
24(b)(11) Independent Auditors' Consent
24(b)(13) Investment Letter
SUB-ADVISORY AGREEMENT
THIS AGREEMENT dated as of October 14, 1996, by and between
OppenheimerFunds, Inc. ("OFI"), a registered investment adviser and
Oppenheimer Real Asset Management, Inc. ("ORAMI"), a registered
investment adviser and a registered commodity trading adviser (the
"Sub-Adviser").
WHEREAS, Oppenheimer Real Asset Fund (the "Fund") is a
Massachusetts business trust which is an open-end non-diversified
management investment company registered as such with the
Securities and Exchange Commission (the "Commission") pursuant to
the Investment Company Act of 1940, as amended (the "Act"), and
whereas the Trustees of the Fund have appointed OFI as the
investment adviser for the Fund, pursuant to the terms of an
Investment Advisory Agreement (the "Advisory Agreement");
WHEREAS, the Advisory Agreement provides that OFI may, at its
option, subject to approval by the Trustees of the Fund and, to the
extent necessary, shareholders of the Fund, appoint a subadviser to
assume certain of the responsibilities and obligations of OFI under
the Advisory Agreement;
WHEREAS, the Sub-Adviser is a registered investment adviser,
and OFI desires to appoint the Sub-Adviser as its subadviser for
the Fund and the Sub-Adviser is willing to act in such capacity
upon the terms herein set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. General Provision.
OFI hereby employs the Sub-Adviser and the Sub-Adviser hereby
undertakes to act as the investment subadviser of the Fund to
provide investment advice and to perform for the Fund such
other duties and functions as are hereinafter set forth. The
Sub-Adviser shall, in all matters, give to the Fund and the
Fund's Board of Trustees, directly or through OFI, the benefit
of the Sub-Adviser's best judgment, effort, advice and
recommendations and shall, at all times conform to, and use
its best efforts to enable the Fund to conform to (i) the
provisions of the Investment Company Act and any rules or
regulations thereunder; (ii) any other applicable provisions
of state or federal law; (iii) the provisions of the Amended
and Restated Declaration of Trust and By-Laws of the Fund as
amended from time to time; (iv) policies and determinations of
the Board of Trustees of the Fund and OFI; (v) the fundamental
policies and investment restrictions of the Fund as reflected
in the Fund's registration statement under the Investment
Company Act or as such policies may, from time to time, be
amended by the Fund's shareholders; and (vi) the Prospectus
and Statement of Additional Information of the Fund in effect
from time to time. The appropriate officers and employees
of the Sub-Adviser shall be available upon reasonable notice
for consultation with any of the Trustees and officers of the
Fund and OFI with respect to any matters dealing with the
business and affairs of the Fund including the valuation of
portfolio securities of the Fund which securities are either
not registered for public sale or not traded on any securities
market.
2. Duties of the Sub-Adviser.
(a) The Sub-Adviser shall, subject to the direction and
control by the Fund's Board of Trustees or OFI, to the
extent OFI's direction is not inconsistent with that of
the Board of Trustees, (i) regularly provide investment
advice and recommendations to the Fund, directly or
through OFI, with respect to the Fund's investments,
investment policies and the purchase and sale of
securities, futures contracts, swaps and other
instruments; (ii) supervise and monitor continuously the
investment program of the Fund and the composition of its
portfolio and determine what securities shall be
purchased or sold by the Fund; (iii) arrange, subject to
the provisions of paragraph 5 hereof, for the purchase of
securities and other investments for the Fund and the
sale of securities and other investments held in the
portfolio of the Fund; and (iv) provide reports on the
foregoing to the Board of Trustees at each Board meeting.
(b) Provided that neither OFI nor the Fund shall not be
required to pay any compensation other than as provided
by the terms of this Agreement and subject to the
provisions of paragraph 5 hereof, the Sub-Adviser may
obtain investment information, research or assistance
from any other person, firm or corporation to supplement,
update or otherwise improve its investment management
services.
(c) Provided that nothing herein shall be deemed to protect
the Sub-Adviser from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under
this Agreement, the Sub-Adviser shall not be liable for
any loss sustained by reason of good faith errors or
omissions in connection with any matters to which this
Agreement relates.
(d) Nothing in this Agreement shall prevent OFI or the Sub-
Adviser or any officer thereof from acting as investment
adviser or subadviser for any other person, firm or
corporation and shall not in any way limit or restrict
OFI or the Sub-Adviser or any of their respective
directors, officers, stockholders or employees from
buying, selling or trading any securities for its or
their own account or for the account of others for whom
it or they may be acting, provided that such activities
will not adversely affect or otherwise impair the
performance by any party of its duties and obligations
under this Agreement.
(e) The Sub-Adviser shall cooperate with OFI by providing OFI
with any information in the Sub-Adviser's possession
necessary for supervising the activities of all
administrative and clerical personnel as shall be
required to provide effective corporate administration
for the Fund, including the compilation and maintenance
of such records with respect to its operations as may
reasonably be required. The Sub-Adviser shall, at its
own expense, provide such officers for the Fund as its
Board may request.
3. Duties of OFI.
OFI shall provide the Sub-Adviser with the following
information about the Fund:
(a) cash flow estimates on request;
(b) notice of the Fund's "investable funds" by 11:00 a.m.
each business day;
(c) as they are modified, from time to time, current versions
of the documents and policies referred to in
subparagraphs (iii), (iv), (v) and (vi) of paragraph 1.,
above.
4. Compensation of the Sub-Adviser.
OFI agrees to pay the Sub-Adviser and the Sub-Adviser agrees
to accept as full compensation for the performance of all
functions and duties on its part to be performed pursuant to
the provisions hereof, a fee computed on the aggregate net
asset value of the Fund as of the close of each business day
and payable monthly by the tenth business day of the following
month, at the following annual rate:
0.50% of the first $200 million of average annual net
assets;
0.45% of the next $200 million of average annual net
assets;
0.425% of the next $200 million of average annual net
assets;
0.40% of the next $200 million of average annual net
assets; and 0.375% of average annual net assets in excess of $800
million.
5. Portfolio Transactions and Brokerage.
(a) The Sub-Adviser is authorized, in arranging the purchase
and sale of the Fund's publicly-traded portfolio
securities, to employ or deal with such members of
securities or commodities exchanges, brokers or dealers
or futures commission merchants (hereinafter "broker-
dealers"), including "affiliated" broker-dealers, as that
term is defined in the Investment Company Act, as may, in
its best judgment, implement the policy of the Fund to
obtain, at reasonable expense, the "best execution"
(prompt and reliable execution at the most favorable
security price obtainable) of the Fund's portfolio
transactions.
(b) The Sub-Adviser may effect the purchase and sale of
securities (which are otherwise publicly traded) in
private transactions on such terms and conditions as are
customary in such transactions, may use a broker in such
to effect said transactions, and may enter into a
contract in which the broker acts either as principal or
as agent.
(c) The Sub-Adviser shall select broker-dealers to effect the
Fund's portfolio transactions on the basis of its
estimate of their ability to obtain best execution of
particular and related portfolio transactions. The
abilities of a broker-dealer to obtain best execution of
particular portfolio transaction(s) will be judged by the
Sub-Adviser on the basis of all relevant factors and
considerations including, insofar as feasible, the
execution capabilities required by the transaction or
transactions; the ability and willingness of the broker-
dealer to facilitate the Fund's portfolio transactions by
participating therein for its own account; the importance
to the Fund of speed, efficiency or confidentiality; the
broker-dealer's apparent familiarity with sources from or
to whom particular securities might be purchased or sold;
as well as any other matters relevant to the selection of
a broker-dealer for particular and related transactions
of the Fund.
(d) The Sub-Adviser shall have discretion, in the interests
of the Fund, to allocate brokerage on the Fund's
portfolio transactions to broker-dealers, other than
affiliated broker-dealers, qualified to obtain best
execution of such transactions who provide brokerage
and/or research services (as such services are defined in
Section 28(e)(3) of the Securities Exchange Act of 1934)
for the Fund and/or other accounts for which the Sub-
Adviser or its affiliates exercise "investment
discretion" (as that term is defined in Section 3(a)(35)
of the Securities Exchange Act of 1934) and to cause the
Fund to pay such broker-dealers a commission for
effecting a portfolio transaction for the Fund that is in
excess of the amount of commission another broker-dealer
adequately qualified to effect such transaction would
have charged for effecting that transaction, if the Sub-
Adviser determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage
and/or research services provided by such broker-dealer,
viewed in terms of either that particular transaction or
the overall responsibilities of the Sub-Adviser or its
affiliates with respect to the accounts as to which they
exercise investment discretion. In reaching such
determination, the Sub-Adviser will not be required to
place or attempt to place a specific dollar value on the
brokerage and/or research services provided or being
provided by such broker-dealer. In demonstrating that
such determinations were made in good faith, the Sub-
Adviser shall be prepared to show that all commissions
were allocated for purposes contemplated by this
Agreement and that the total commissions paid by the Fund
over a representative period selected by the Trustees
were reasonable in relation to the benefits to the Fund.
(e) The Sub-Adviser shall have no duty or obligation to seek
advance competitive bidding for the most favorable
commission rate applicable to any particular portfolio
transactions or to select any broker-dealer on the basis
of its purported or "posted" commission rate but will, to
the best of its ability, endeavor to be aware of the
current level of the charges of eligible broker-dealers
and to minimize the expense incurred by the Fund for
effecting its portfolio transactions to the extent
consistent with the interests and policies of the Fund as
established by the determinations of the Board of
Trustees and the provisions of this paragraph 5.
(f) Subject to the foregoing provisions of this Section 5,
ORAMI may also consider sales of shares of the Fund and
other funds advised by either OFI, ORAMI or their
affiliates as a factor in the selection of broker-dealers
for its portfolio transactions.
6. Duration.
This Agreement will take effect on the date first set forth
above. Unless earlier terminated pursuant to paragraph 7
hereof, this Agreement shall remain in effect until two years
from the date of execution hereof, and thereafter will
continue in effect from year to year, so long as such
continuance shall be approved at least annually by the Fund's
Board of Trustees, including the vote of the majority of the
Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Investment Company
Act) of any such party, cast in person at a meeting called for
the purpose of voting on such approval, or by the holders of
a "majority" (as defined in the Investment Company Act) of the
outstanding voting securities of the Fund and by such a vote
of the Fund's Board of Trustees.
7. Termination.
This Agreement shall terminate automatically in the event of
its assignment or in the event the Fund terminates the
Advisory Agreement; it may also be terminated: (i) for cause
or with the consent of the parties and the Fund, by OFI or the
Sub-Adviser at any time without penalty upon sixty days'
written notice to the other party and the Fund; or (ii) by the
Fund at any time without penalty upon sixty days' written
notice to OFI and the Sub-Adviser provided that such
termination by the Fund shall be directed or approved by the
vote of a majority of all of the trustees of the Fund then in
office or by the vote of the holders of a "majority" of the
outstanding voting securities of the Fund (as defined in the
Investment Company Act).
8. Disclaimer of Shareholder Liability.
OFI and the Sub-Adviser understand that the obligations of the
Fund under this Agreement are not binding upon any Trustee or
shareholder of the Fund personally, but bind only the Fund and
the Fund's property. OFI and the Sub-Adviser represent that
each has notice of the provisions of the Amended and Restated
Declaration of Trust of the Fund disclaiming shareholder and
Trustee liability for acts or obligations of the Fund.
9. Notice.
Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party,
with a copy to the Fund, at the addresses below or such other
address as such other party may designate for the receipt of
such notice.
If to OFI:
OppenheimerFunds, Inc.
2 World Trade Center, 34th Floor
New York, New York 10048-0203
Attention: Andrew J. Donohue, Esq.
If to the Sub-Adviser:
Oppenheimer Real Asset Management, Inc.
2 World Trade Center, 34th Floor
New York, New York 10048-0203
Attention: Katherine P. Feld, Esq.
If to either party, copy to:
Oppenheimer Real Asset Fund
3410 South Galena Street
Denver, Colorado 80231
Attention: James C. Swain, Chairman
IN WITNESS WHEREOF, OFI and the Sub-Adviser have caused this
Agreement to be executed on the day and year first above written.
OPPENHEIMERFUNDS, INC.
By: /s/ Robert G. Zack
--------------------
Robert G. Zack,
Senior Vice President
OPPENHEIMER REAL ASSET MANAGEMENT,
INC.
By: /s/ Katherine P. Feld
-----------------------
Katherine P. Feld,
Vice President
Accepted and Acknowledged:
OPPENHEIMER REAL ASSET FUND
By: /s/ Andrew J. Donohue
---------------------------
Andrew J. Donohue, Vice President
ADVISORY\735#3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to
Registration Statement No. 333-14087 of Oppenheimer Real Asset Fund
of our report dated January 16, 1997 appearing in the Statement of
Additional Information, which is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
January 30, 1997
prosp\735con
January 15, 1997
The Board of Trustees
Oppenheimer Real Asset Fund
6803 South Tucson Way
Englewood, Colorado 80112
To the Board of Trustees:
OppenheimerFunds, Inc. ("OFI") herewith purchases 10,000 Class
A shares, 100 Class B shares, 100 Class C shares and 100 Class Y
shares of Oppenheimer Real Asset Fund (the "Fund") at a net asset
value per share of $10.00 for each such class, for an aggregate
purchase price of $103,000.
In connection with such purchase, OFI represents that such
purchase is made for investment purposes by OFI without any present
intention of redeeming or selling such shares. OFI will advance
all organizational and start-up costs of the Fund. Such expenses
will be amortized over a five-year period from the date operations
commence. On the first day that total assets exceed $5 million,
the Fund will reimburse OFI for all start-up expenses. In the
event that all or part of OFI's initial investment in shares of the
Fund is withdrawn during the amortization period, by any holder
thereof, the redemption proceeds will be reduced by the
proportionate amount of the unamortized organization costs
represented by the ratio that the number of shares redeemed bears
to the number of initial shares outstanding at the time of such
redemption.
Very truly yours,
OppenheimerFunds, Inc.
/s/ Robert G. Zack
____________________
Robert G. Zack
Senior Vice President
ADVISORY/735.LTR
